Larry Summers Calls for Bailing Out the Wall Street Boys
In a Financial Times column whose logic escapes me, former Treasury Secretary Larry Summers calls for having the huge government created housing intermediaries, Fannie Mae and Freddie Mac, step in and start buying up more mortgages and mortgage backed securities. Summers’ says “if there is ever a moment when they should expand their activities it is now, when mortgage liquidity is drying up."
Let’s check the scorecard. The value of hundreds of billions of dollars of mortgage backed securities has just fallen through the floor because investors now realize that a very high percentage of the mortgages that back these securities will go into foreclosure. Now, why do we want a government agency to buy assets that are rapidly losing their value?
At the moment, it looks to me like we are seeing high-flying speculators getting nailed for making really stupid investment decisions. Being a mushy headed liberal sort, I like to see the government reach out to help people who are trying to get an education, who have lost their job, or need health care, but making really stupid investment decisions is not on my list. Perhaps Summers could write another piece explaining why it should be.
Summers begins his column by listing prior financial crises, starting with the stock market crash in 1987, and puts the current mortgage meltdown in this context. While I would not suggest a one-size fits all approach to financial crises, the government’s role in most of the crises on this list can be seriously questioned. For example, did the response to the 1987 stock market crash lead investors to believe that the Fed would/could bail out the stock market, and thereby lay the basis for the huge bubble of the 90s? In the same vein, did the Fed’s involvement in the unwinding of the Long-Term Capital Management’s position give a green light to investors to speculate in hedge funds, knowing that the Fed would step in to prevent the worst outcomes.
Bailouts have both immediate and long-term effects. When the immediate effect is to transfer taxpayer dollars to some of the richest people in the country that is bad news. If the long-term effect is lead investors to believe that they can engage in risky investments and the government will come to their rescue if things go badly, this is even worse news. So, I’ll take a pass on Larry Summers bailout.
(I do take seriously the problem of the homeowners who are victims of the subprime mortgage pushers. My plan for bailing out the homeowners is here.)
I am not sure that your plan is not both a taking under the 5th Amendment and thus requires someone to compensate the lenders, now owners of the foreclosed houses, and a violation of the contract clause of the U.S. Constitution.
The two other problems with your plan is that it rewards borrowers who were irresponsible. Some lenders, maybe a lot of lenders were less than honorable even dishonest, though I bet less than claimed, but people sure know what they can afford when the payment for their mortgage reaches a certain level.
The other problem is that you will keep low and working class people from ever owning their home. Why would lenders ever lend to anyone who does not have either have an enormous downpayment or great credit.
The paternalism toward the less than rich, which has the impact of deny many people a Middle Class life, endlessly fascinating.
One would hope plans can be designed to keep a lot of people from losing their homes. There should also be investigatins to see what methods were used to encourage people to take out sub-prime loans. (Would you bail-out prime borrowers facing foreclosure and if not why not?) If and where marginal means were used the lenders should be punished. Saddling lenders with renters, who are unlikely to be able to afford their rents either, seems frought with disaster.
Daniel A. Greenbaum
August 27, 2007 10:26 AM | Reply | Permalink
I love the rental solution. So what if it's not in the contracts that were signed. Everybody would be better off.
As for the bail out of Long Term Capital -- it at least didn't involve government money. The Fed got the banks to step in and to basically save themselves by saving the system. It's the bank who should clean this up, not the quasi government entities like Fannie and Freddie who use public money.
thosethingswesay.blogspot.com
August 27, 2007 10:56 AM | Reply | Permalink
Um, whatever happened to the "free market" and "market forces"? Not to mention, "Getting Government out of the way."
August 27, 2007 10:57 AM | Reply | Permalink
As far as I know, there have been no constitutional challenges to the bankruptcy reform law as either a taking or violation of contract. That law retroactively applied harsher conditions to debt collection, in effect giving money from debtors to creditors outside the terms of the contract at the point at which it was signed. Apart from having laws interpreted in ways that tend to favor those with money, it is hard for me to see how it could be constitutional to change laws retroactively to the detriment of creditors, but not to the detriment of lenders.
As for incentives, they are exactly right. If you have a one-time change in rules applied to mortgages issued at some prior date (e.g. July 1, 2007) then the incentive to lenders is to not make obviously ridiculous loans in the midst of a housing bubble. The lesson is that when you make bad loans that the borrowers are not going to be able to pay off, you lose money.
Is our lenders learning?
August 27, 2007 11:00 AM | Reply | Permalink
That's just the shorthand. The complete version is "Getting the Government out of the way of the rich".
And really, corporatists who talk up the free market are like too many politicians when they talk about their faith. It's just lip service.
Most corporatists would starve in a real free market.
August 27, 2007 11:25 AM | Reply | Permalink
I don't see the constitutional challenge either. It's not taking property from original homeowner, of course, since they've just lost it. It's not taking property from the mortgage holder, since they'd still own it. It does tell them what use they can make of it, but since their own investment just crashed and burned, they're unlikely to object.
I see the objection that it no longer holds out the promise that the original homeowner could become one again, but it's hard to do much about that. They certainly are closer to being solvent again than if they are simply kicked out with nothing to show for it.
The bit about needing further to punish the defaulter just mystifies me. There's a limit to how much we use government to teach such lessons; there are limits to how much to hold individual defaults responsible for such factors as need, misleading terms, and market hysteria; and there's the societal interest in keeping them solvent, since the ripple effects are a concern to the rest of us. The moral values of the free market can shove it.
I can see that some will be kicked out, however. Say, market rental rates in NY can at some times and places track costs of maintenance plus mortgage to some extent, so if one can't afford the one, one may not be able to afford the other. Probably not so bad. Right now, I could rent my apartment for more than twice my maintenance and for less than I was formerly paying in carrying charges, but then with prices what they are now, carrying charges would also be much higher. Still, in a sense it's not that much different, is it, from having them seek market rents elsewhere, except sparing them the effort?
On the whole, though, while I realize that a burst bubble's ripple effect on me is related to problems with the lenders and those who pool the risk from lenders, still I tend to agree that they're the wrong people to bail out. They were often exploitative, and they're less likely to need the break. And I agree that saddling government with these assets, at a huge cost, is not the answer either (unless we're seeking down the road a massive government involvement in creating middle-income housing, which I doubt).
John
http://www.haberarts.com/
August 27, 2007 11:36 AM | Reply | Permalink
Oh, and I hope the middle-of-the road ninnies over in Warren Reports suggest "counseling" of hedge fund managers as a solution. Or maybe of their computer models.
John
http://www.haberarts.com/
August 27, 2007 11:46 AM | Reply | Permalink
No bailout!
Not for the lenders _or the borrowers_.
Look, being one of those lame, dull types who makes sure he can actually afford what he can buy, I spent the decade renting. I got the sneering. The condescension. The second class social status a professional in DC gets when they don't buy.
Now, finally when reality is settling in, and all the idiots who were taking out I/O ARMS, etc...are driving the market prices downwards...you folks want to re-inflate the bubble and keep prices up. No special deals for chuckleheads who borrowed more than they could afford. We adults shouldn't be on the hook subsidizing the profligate.
I didn't save up and act like a mature adult, waiting out the bubble and saving money just for you to pick my pocket and float the yuppie scum who overextended. If that is going to be the case, hold on...there's a great house in Ledroit Park I can't afford on my low six figure income. I'll run out and buy it, and then you do your borrower baiolout plan, okay?
August 27, 2007 11:54 AM | Reply | Permalink
The reason Larry Summers wants to avoid seeing large losses is becuase he realizes the necessity of mainntaining the Grand Illusion.The illusion being that it is somehow better that your pension fund is managed by some "investment manager" than in the hands of a fourteen year in Vegas.
August 27, 2007 11:58 AM | Reply | Permalink
Blaming irresponsible borrowers for this crisis is plainly absurd. It is in human nature that people will make bad financial decisions when hope and wishful expectations overcome common sense. People in stressful financial situations are more likely to make bad decisions. The subprime lenders and those who packaged the mortgage backed securities are to ones to blame because they found a scheme where they could pawn off their risk into, what turned out to be in many cases, unsuspecting investors.
I tend to agree with Baker's sentiments. But if my memory is correct the banks did not bail out Long Term Capitol investors. Those people lost billions of dollars. What the banks did was cover the trillion or so dollars in futures in which LTC held positions. This prevented a deeper crisis that could have undermined the entire futures markets.
August 27, 2007 12:03 PM | Reply | Permalink
The issue really isn't overextended yuppie scum, but people who really had no business with loans in the first place. Now, yes, it's true that people should take responsibility for their own decisions, should read the fine print and so forth. But I listen to my local radio stations, and a substantial fraction of the ads are misleading ads designed to get people to stump up money in the hopes of getting still more. From people who offer to buy out your annuity payment to the ones who offer you a thirty day review of get rich quick scheme to, of course, the state lottery folks who simply lie about the size of the jackpot by not stating it in NPV terms, I know there are people out there who can be persuaded to make a bad deal.
As treasurer of my coop, I see all the resale packages, and, yes, there are people willing to put themselves, early in their yuppie scum lives, at serious risk if a job is lost. But those people are not in the same boat as someone who put up their life savings to get to 5 percent, borrowed 15 on an AR credit line, and then another 80 on an ARM, the latter two with teaser rates.
There's a point where people are simply being conned. And, since the originators dump off the risk, there is massive incentive for them to engage in such cons.
If it was considered worthwhile to help Chrysler work its way out of crisis, I don't see why it is not equally worthwhile for homeowners to get to renegotiate terms of their loans, or even convert to rentals. They've still lost the asset. That seems like lesson enough to me.
August 27, 2007 12:05 PM | Reply | Permalink
“It's not taking property from the mortgage holder, since they'd still own it. It does tell them what use they can make of it, but since their own investment just crashed and burned, they're unlikely to object.”
Their investment did not necessarily crash and burn. They simply made a bad loan. Encumbering the foreclosed property with an entrenched renter certainly reduces its value further.
August 27, 2007 12:10 PM | Reply | Permalink
"Their investment did not necessarily crash and burn. They simply made a bad loan." And the resident "simply" took a bad loan. You just prefer to shield the other party.
"Encumbering the foreclosed property with an entrenched renter certainly reduces its value further." Well, it also ensures them some cash flow they might or might not get until their piece of paper is no longer as worthless. But mostly, tough nuggies, The libertarian point of view didn't do much to forestall this disaster or cope with it thus far, so why should I care for preserving its consistency now?
John
http://www.haberarts.com/
August 27, 2007 12:18 PM | Reply | Permalink
Jay,
In my proposal, only people who bought a home at less than the median price in an area would be able to benefit from the rental option. So, if this helps out yuppie scum, it will only be low-rent yuppie scum.
August 27, 2007 12:31 PM | Reply | Permalink
Isn’t time we looked at the crisis in real terms instead of the Media’s catch phrase of “sub-prime” loans?
Are there very large numbers of foreclosures? Yes, but what percentages of foreclosures are from sub-prime borrowers?
The New York Times article, here
focusing on Atlanta describes a foreclosure situation that is only partially do to subprime mortgages.
How many articles on consumer spending have you see that noted that the consumer driven economy was based on borrowing? That borrowing was covered by the substantial rise in home values that allowed people to refinance against high appraisals to pay off credit card debt or to directly purchase high priced toys and vacations. This has been covered in detail now for several years.
These consumers continued to live the high life expecting to be able to refinance their lifestyle against their ever rising home values forever. Why wouldn’t they believe that to be true when almost all economic “experts” were claiming that the housing bubble wasn’t really a bubble?
Now these families are unable to refinance their debt and their total monthly payments are locked into the high interest rate credit cards. Instead of refinancing their 15% credit card to a 5.5% mortgage they have to find the money to stay afloat making the credit card payments. For many, this isn’t working.
Their alternative is to sell the home but this is where the under emphasized appraisal scam comes into play. With home values appreciating everywhere what would it matter if the mortgage appraisers fudged a little on the value of a home. In only a few months, the value of the home would catch up, or so they thought until the bubble burst.
This little appraisal game was working out for everyone; the consumer refinancing, the new home purchaser, the mortgage broker and the mortgage company.
The consumer refinancing works we covered above.
This worked for the home purchaser because the appraisals were coming in much higher than sale prices for the homes; this created immediate equity to offset down payment amounts.
This was great for the mortgage brokers as they made points through either the refinancing or the new mortgage. Many used their own favorite appraiser to insure they got the right amount on every appraisal.
Did the lenders really care about this? No, because they were raking in the bucks with origination fees and then selling the mortgage.
So the home price inflation game seemed to working for everyone. Even average homeowners became real estate investors. New homes in their area were appreciating between contract signing and the home completion. They could put money down on the lot and home package next door and turn it for a profit without ever closing the loan. If they were really greedy they could decide to sit on the house with a renter and make a killing on appreciation in just one year.
So why is all the focus on the subprime borrower?
What I see more than anything is just the effects of a typical bubble. It isn’t the subprime borrower causing the problem.
It is the loss of new buyers at the base of the pyramid. The demographics are right there. We have fewer young workers and therefore we have fewer buyers. So what we have is not a mortgage crisis but a valuation crisis. We have more commodity than buyers which is lowering the price of everyone’s home.
Subprime borrowers are no more likely to be entering foreclosure than any of the other consumers trapped by falling prices. Even the banks are being caught by the devaluation with their cash to asset ratio requirements.
We now have 9.6 months inventory of homes on the market. If employment causes you to have to move to a new location, how long can you afford to pay for two housing units? How long before you are so desperate you cut your sale price to rock bottom? What happens if you still can’t sell it? What happens if your rock bottom price is below the amount of your original mortgage appraisal?
So we really have multiple problems to deal with.
We have the consumer who can’t sell and needs to; the consumer that can’t sell for what they owe; the consumer that can’t refinance their debt and becomes one of the sellers above; the average Joe investor that can’t sell the house next door, can’t rent it, and his zero principle loan is expiring or his variable rate is climbing or he also falls into one of the other seller categories above. We also have the housing boom employees; realtors, construction tradesmen, mortgage brokers (what irony), and staff from the all of the related fields that are now facing less wages against steady mortgage payments or even worse, up ticking variable payments. We also have the banks and mortgage lenders and hedge funds which are suffering although I feel a lot of glee watching the hedge fund managers sweat a little.
So why is this a subprime mortgage crisis?
Why do we expect that once the subprime borrowers are rescued that the foreclosure rate will slow?
Why do we think that this ”subprime” or ”liquidity” crisis can be fixed by a renter program?
The dynamics of this problem are much deeper than just a subprime crisis and a questionable Band-Aid renter fix. The renter fix would be ineffective, impossible to implement and manage, certainly a violation of contracts and incredibly unjust to everyone other than a subprime borrower.
The same needs to be said about bailing out Wall Street. We should bail out Wall Street so that they can continue to foreclose on homes?
I am not so disconnected from this problem myself and certainly feel empathy for anyone having to go through foreclosure.
My solution is of course anathema to Wall Street (and by incest the Fed). We need a good dose of inflation with rising wages.
This allows us consumers to pay back these loans with cheaper dollars. We can inflate our way back to previous home valuations. As long as we are inflating wages, the effect on consumers will be minimal.
Of course, the banks don’t like the cheaper money and our country’s foreign owners like the Chinese won’t be happy but so what. In the long term they can’t allow us to go down too swiftly as we might take them with us.
Let’s see how this one plays with all of the learned economists.
Inflation is the answer!
August 27, 2007 12:52 PM | Reply | Permalink
Except it still takes units out of the market, and artifically maintains the bubble pricing. To add insult to injury, adults who actually saved money riding out this madness will be stolen from to do so.
Again, rewarding the profligate at the expense of the mature adults. Not good.
And anyone who knows grifters, or just of the fundaments of grifting will tell you that you can't con an honest mature adult who isn't greedy. Every con is based on the idea that the mark is going to rip off the con man. If you are honest, dion't want to take anyone else and know that there is no such thing as something for nothing, you are immune from being conned.
So I feel no pity for the "conned".
August 27, 2007 1:40 PM | Reply | Permalink
Okay...I missed that clause. Just went back and re-read your proposal. In that case I agree, with one noted objection...it should be the median price in 2003, pre-bubble lunacy. Otherwise, you're basically handing over the store to almost everyone given the madness that ensued between 2003 and 2005.
August 27, 2007 1:48 PM | Reply | Permalink
And anyone who knows grifters, or just of the fundaments of grifting will tell you that you can't con an honest mature adult who isn't greedy. Every con is based on the idea that the mark is going to rip off the con man.
No doubt it was a con man who thought this up.
It might be true if one limits it to a narrow definition of "con", but it conveniently ignores the fact that honest people can be cheated, simply by intentionally making a deal complicated enough that the important fine print can be glossed over.
August 27, 2007 1:50 PM | Reply | Permalink
Not really. Its pretty simple. If you can't afford to buy something using traditional financing, you won't automagically be able to through another type of loan. Not too tough to figure out.
If you took out a loan knowing it would potentially reset in the near future above your income, you're a moron and don't deserve a bailout.
If a lender magically took a price you couldn't afford and gave you a loan you could, and you didn't ask "how", you're a moron who doesn't deserve a bailout.
If you actually conned yourself into believing a magical new type of loan made something you couldn't afford affordable, you conned yourself and don't deserve a bailout.
Again, to pull this off, people had to con themselves. The crooked lenders couldn't con an adult who was careful, and knew there was no such thing as a freebie. This was either the mark thinking the con man was going to lose money on the deal, or the mark conning themselves into believing they were getting something for nothing.
August 27, 2007 2:17 PM | Reply | Permalink
"sub prime loans" heh heh heh.....the sharks are in the water.
Hey mister blue collar, can't afford a new car? We got a lease for ya!
How about a credit card there young feller?
Buy now, no payments till next year.
A $Million in life insurance for just pennies a day.
"sub prime loans" heh heh heh.
August 27, 2007 2:33 PM | Reply | Permalink
No need to do the lenders any favors. They could make a deal with the foreclosed owner to stay until the property could be resold it they wanted cash flow.
Why convert an owner occupied house to a rental unit that is difficult to sell due to the privileged renter? Better for the defaulting owner to move to established rental properties managed by people who want to be in the land lord business and allow the foreclosed property to be resold to another owner occupier.
It it makes you feel better the government could pick up their moving costs I suppose.
August 27, 2007 3:20 PM | Reply | Permalink
investors now realize that a very high percentage of the mortgages that back these securities will go into foreclosure.
A high pecentage? Not at all. The vast majority of all mortgages are sound and will not go into default. The problem here is not that most mortgages are endangered, but rather the uncertainty as to which mortgages will go bad. Eventually (after a couple of years or so) we will know theasnwer and these securities can be priced properly again, and investors wqill know their level of risk. I'm not all that sympathetic in the meantime, as all investments carry with them a certain amount of risk, and people who fool themselves that this is not true are, well, fools.
As for homeowners who have suffered a financial disaster-- job loss or serious health event-- I'd like to hear some suggestions for helping these folks out. But those who just bought too much house for their income or didn't bother to think about what would happen when their ARM reset (and assuming they were not flat out lied to) are also culpable in the current fiasco and they too should be in the category of the foolish and I have no desire to bail them out.
August 27, 2007 4:18 PM | Reply | Permalink
Don't quote these numbers because it was a long time ago and I can't remember them.
Recall the great Savings and Loan bail-out. Originally, the Fed guaranteed loans made by the S&L's for $10,000. A bill coming out of Congress having to do with S&L's was raided literally at the midnight hour and the ten grand was changed to $100,000. Thus set off the era of frenzied S&L loans to anybody and everybody. (Google Neil Bush for more info.)
And then there is the reasoning behind the government bail-out of large corporations about to go under - the government has to bail them out because "they're too big to fail."
To all those who deplore government "interference" in the the "free market" please specify as to which "interference" you deplore and which is acceptable.
August 27, 2007 4:20 PM | Reply | Permalink
You evidently believe in an interpretation of the takings clause that is so broad as to forbid any reduction in the value of an asset. The courts haven't agreed with you.
August 27, 2007 4:36 PM | Reply | Permalink
Socialism for the Rich, Capitalism for the Poor!
Bleeding Heart Stooges.
Too Big To Fail, To Fat To Shoot!
::JRBehrman
August 27, 2007 4:43 PM | Reply | Permalink
I didn't mean to imply that Baker's plan would be unconstitutional. That horse left the barn a long time ago.
August 27, 2007 4:47 PM | Reply | Permalink
I am among the many with serious doubts . . . No doubt . . . Now . . . is not the time . . . . Larry Summers
One shopworn, rhetorical cliche after another. In point of fact Summers hasn't said a single thing, hasn't made a single proposal that can be debated.
He says that lending restrictions at Fannie Mae and Freddie Mac should be eased (he calls it "expand[ing] their activities") but doesn't tell us in what way. Raising the loan limits to pick up what are otherwise referred to as jumbo mortgages? Reducing underwriting standards? Increasing the permissible loan-to-value ratios? Quién sabe. Larry isn't saying. Another off-the-cuff remark from the Summers himself, perhaps.
Like most of our current run of politically inclined economists he's just a bullsh**er and beneath debate.
August 27, 2007 5:55 PM | Reply | Permalink
What if Fannie Mae and Freddie Mac bought up the mortgages at their current market value (next to nothing) left the people in the houses stay in them till a new mortgage with the above can be worked out. If they reworked the loans into a decent fixed rate 30, 40, 50 year loans. If you take the Sacramento,CA market the house values have fallen 40 % in the past year alone. A mortgage redone under these terms would probably be affordable. Sure the investors might only get pennies on the dollar but it's they who deserve to get stiffed not the low wage worker. We have bailed the big guys out too often but this time they stuck it to the really little guys. They need to be taught a lesson.
August 27, 2007 9:59 PM | Reply | Permalink
Meanwhile, the grownups who didn't buy because they knew they couldn't afford it get to help pay for the children to keep what they couldn't afford. This in turn reducues the housing stock, making it more expensive for the grownups.
Talk about moral hazard and perverse incentives.
Again, if this is the plan waitup until I buy the place I can't afford in Ledroit, so I can get bailed out and take a freebie as well!
August 27, 2007 10:29 PM | Reply | Permalink
I believe there is a bit of grasping at straws in an attempt to spin the legacy of GW Bush's Presidency into something other than a miserable failure. There is also political pressure from The RNCC to keep the economy afloat until after the next Election cycle.
I think that the loudest-mouthed of the "fiscally responsible" Republican Federal Politicians, who have been very vocal about the Democratic majority legislations' costs should be scrutinized very closely for any hint of a flip-flop. Here are four vociferous House Members with some relevant contributor data provided by The Center For Responsive Politics: ........ Mike Pence - since 2000
........ Individual Contributors
|-----------------------------------------------|
| 4 | Associated Builders & Contractors |$42,450|
|---|-----------------------------------|-------|
| 9 | Credit Union National Assn........|$35,000|
|---|-----------------------------------|-------|
|10 | National Assn of Home Builders... |$33,000|
|---|-----------------------------------|-------|
|15 | National Assn of Realtors.........|$31,000|
|---|-----------------------------------|-------|
|17 | Hasten Bancorp....................|$24,050|
|---|-----------------------------------|-------|
|18 | Krieg, DeVault et al..............|$21,891|
|-----------------------------------------------|
............Sector Totals
|--------------------------------------|
| 7 | Securities & Investment |$140,397|
|---|-------------------------|--------|
| 9 | Real Estate............ |$137,317|
|---|-------------------------|--------|
|12 | Commercial Banks........|$117,489|
|---|-------------------------|--------|
|13 | General Contractors.....|$109,100|
|---|-------------------------|--------|
|16 | Misc Finance............|$ 77,950|
|--------------------------------------|
...........Jeb Hensarling - since 2002
............ Individual Contributors
|------------------------------------------------------|
| 2 | First State Bank........................ |$33,600|
|---|------------------------------------------|-------|
| 4 | JP Morgan Chase & Co.....................|$32,000|
|---|------------------------------------------|-------|
| 8 | American Bankers Assn....................|$27,000|
|---|------------------------------------------|-------|
| 9 | Ranger Governance Ltd....................|$26,000|
|---|------------------------------------------|-------|
|10 | Bank of America..........................|$22,500|
|---|------------------------------------------|-------|
|11 | Credit Union National Assn...............|$22,250|
|---|------------------------------------------|-------|
|15 | Associated Builders & Contractors........|$20,500|
|---|------------------------------------------|-------|
|15 | Independent Community Bankers of America |$20,500|
|---|------------------------------------------|-------|
|19 | Zachry Construction..................... |$19,250|
|---|------------------------------------------|-------|
|20 | FMR Corp.................................|$19,200|
|------------------------------------------------------|
.........Sector Totals
|---------------------------------------|
| 1 | Commercial Banks.........|$304,050|
|---|--------------------------|--------|
| 3 | Misc Finance............ |$265,475|
|---|--------------------------|--------|
| 4 | Real Estate..............|$235,650|
|---|--------------------------|--------|
| 7 | Securities & Investment..|$193,192|
|---|--------------------------|--------|
|10 | Finance/Credit Companies |$125,504|
|---|--------------------------|--------|
|17 | Home Builders............|$ 62,450|
|---|--------------------------|--------|
|20 | General Contractors......|$ 54,219|
|---------------------------------------|
...... Jeff Flake - since 2000
...... Individual Contributors
|--------------------------------------------|
| 2 | Farnsworth Companies...........|$34,450|
|---|--------------------------------|-------|
| 5 | Del Webb Corp..................|$24,000|
|---|--------------------------------|-------|
| 6 | Pinnacle West Capital......... |$23,500|
|---|--------------------------------|-------|
| 8 | National Assn of Home Builders |$20,000|
|---|--------------------------------|-------|
|10 | National Assn of Realtors......|$18,250|
|---|--------------------------------|-------|
|12 | Fulton Homes.................. |$18,200|
|---|--------------------------------|-------|
|16 | Founders Bank..................|$16,000|
|---|--------------------------------|-------|
|18 | Credit Union National Assn.....|$14,500|
|--------------------------------------------|
...... Sector Totals
|--------------------------------------|
| 1 | Real Estate............ |$207,400|
|---|-------------------------|--------|
| 6 | Securities & Investment |$ 57,850|
|---|-------------------------|--------|
| 7 | Home Builders...........|$ 53,300|
|---|-------------------------|--------|
| 9 | Commercial Banks........|$ 49,820|
|---|-------------------------|--------|
|13 | Misc Finance............|$ 34,800|
|--------------------------------------|
........Tom Feeney - since 2002
.........Individual Contributors
|-----------------------------------------------|
| 3 | Associated Builders & Contractors |$25,500|
|---|-----------------------------------|-------|
| 5 | Credit Union National Assn........|$24,000|
|---|-----------------------------------|-------|
|12 | National Assn of Realtors.........|$20,000|
|---|-----------------------------------|-------|
|16 | A Duda & Sons.....................|$19,000|
|---|-----------------------------------|-------|
|18 | American Bankers Assn............ |$18,600|
|---|-----------------------------------|-------|
|19 | Bank of America.................. |$18,000|
|-----------------------------------------------|
........Sector Totals
|---------------------------------------|
| 4 | Real Estate..............|$210,407|
|---|--------------------------|--------|
| 7 | Commercial Banks.........|$130,584|
|---|--------------------------|--------|
| 9 | Securities & Investment..|$108,062|
|---|--------------------------|--------|
|11 | Home Builders............|$ 76,400|
|---|--------------------------|--------|
|16 | Finance/Credit Companies |$ 66,850|
|---|--------------------------|--------|
|19 | General Contractors......|$ 56,800|
|---------------------------------------|
August 27, 2007 10:53 PM | Reply | Permalink
it is almost painfully funny...a year ago i recommended that everyone clean up their debt. boy, was i ridiculed.
look, the crazy mortgage game has been the same game that the republicans played so as to elect ronald reagan and george herbert walker bush.
they wanted homebuilder/mortgage banking money, they stoked homebuilding & mortgage banking. in a sense, it was a money laundering kite...bob perry of perry homes[a big bushit] gave the rnc and the bushits lots of money. in exchange, he got policies that inflated his homebuilding business. the same benefits accrued to that zionist bastid eli broad and the toll brothers.
and never forget, all this cheap money was forced on the economy by that very clever zionist, alan greenspan, after the false flag op known as 911.
this is a replay of the game that pete brewton wrote about during his days at the houston post, that was published in book form as the mafia, cia & george bush.
we have been taken here previously by this organized crime family and its associates.
another investigation into the looting of amerika by the bushits in the 1980's appeared in the national thrift news. that reporting later appeared in book format entitled INSIDE JOB: THE LOOTING OF AMERIKA'S SAVINGS AND LOANS. by steve pizzo and mary fricker.
sad to say, this was an investigation shunned/silenced by the msm. and that is why it all happened all over again.
i close this way, all of this has been the result of bipartisan looting. demtillians = reptillians.
or demtillian fascist bastid = reptillian fascist bastids.
August 27, 2007 10:58 PM | Reply | Permalink
Daniel Greenbaum: The other problem is that you will keep low and working class people from ever owning their home. Why would lenders ever lend to anyone who does not have either have an enormous downpayment or great credit.
The answer is that such loans would have to involve federal subsidies. To a large extent, they already do; many, if not most, home loans are guaranteed through the FHA or VA.
The paternalism toward the less than rich, which has the impact of deny many people a Middle Class life, endlessly fascinating.
Without paternalism, there is no middle class. The middle class is a creation of government and requires social democratic programs to sustain. Without this, the economy automatically polarizes into a tiny wealthy elite and a large mass of despondent poor. This was the fate of virtually all societies until the era of modern activist government.
August 28, 2007 3:03 AM | Reply | Permalink
The people in the middle class will be pleased to hear that they are wards of the state I am sure. In fact, wouldn't that make a good campaign slogan?
August 28, 2007 5:51 AM | Reply | Permalink
Define "middle class".
August 28, 2007 6:25 AM | Reply | Permalink
This was meant as a reply to August 28, 2007 - 6:03am joshua_g but I accidentally put it in the wrong hole. I suggest you ask him.
August 28, 2007 6:33 AM | Reply | Permalink
A member of any household whose income is within one standard deviation of the median household income of that member's socio-economic-geo-demographic group.
How's that?
August 28, 2007 7:20 AM | Reply | Permalink
"One shopworn, rhetorical cliche after another. In point of fact Summers hasn't said a single thing, hasn't made a single proposal that can be debated." Ellen does have a good description of his rhetoric, the kind one associates with DC politics, in fact. It struck me, when he drove his division between himself and the Harvard faculty beyond repair by throwing in the line about women in science, that part of why it was so grating was that it was so, well, faux polite. It was on the order of perhaps we should consider the possibility. No wonder academics, used to having actual arguments made, at times even backed by evidence, found it no more than sexist name calling.
John
http://www.haberarts.com/
August 28, 2007 7:27 AM | Reply | Permalink
"Again, rewarding the profligate at the expense of the mature adults." I think we've already discussed why the supposition here of freely made decisions in a functioning market of equals is bunk, and we've discussed why society may have an interest in or concern for the losers after the market has made it's decision. A libertarian uses moral language, but as a means to preclude morality from economic decision making.
But again, as I keep saying, beyond whether you feel sorry for them, I feel sorry for the rest of Americans with some investment in the economy. It's their livelihoods, retirement funds, employment prospects, etc., etc., that become at risk now, in fact at risk beyond what a simple model of a bubble bursting for those investing in a small sector of the economy would predict, and I'm interested in a functioning economy. A libertarian would have us trust the religion. I've had seven years now of the religion, here and in the other kind of religion when it comes to decisions about science, and it's done enough damage.
John
http://www.haberarts.com/
August 28, 2007 7:34 AM | Reply | Permalink
"Their investment did not necessarily crash and burn. They simply made a bad loan. Encumbering the foreclosed property with an entrenched renter certainly reduces its value further."
Does anyone remember what happened to foreclosed properties during and after the S&L crisis? Abandoned condos and other properties deteriorated and eventually were auctioned off at very low prices (with much chicanery involved in who ultimately wound up the properties.
Banks are not very good landlords and it is difficult for even a professional landlord to keep an empty property from deteriorating And when it does, as Dean (I think) pointed out above, the entire block is affected.
So banks won't be "encumbered " with an entrenched renter--they will have someone watching the property who actually cares. (it's his home and in many cases, he may plan on staying there and renting for a long time.)
I think Dean's plan is excellent.
As for whether people buying median-priced (and below median-priced) homes "deserve" to be bailed out, I think it's worth noting that the chairman of our federal reserve (the Maestro) was urging people to take adjustable rate mortgages at a time when interest rates were at or near historic lows. If you were an economist or knew anything about interest rate cycles, it was apparent that interest rates could only go in one direction--up. It was the worst possible time to take an adjustable rate loan (just as the mid to late eighties was an excellent time to take an adjustable rate loan. )
Most people are not economists and don't know much of anything about interest rate cycles--which is why banks could sell adjustable rate mortages at a time when anyone who knew anything about interest rates was converting his mortgage to a fixed-rate loan
My point is that it wasn't just sleazy bankers but our government that urged people to take loans that they wouldn't be able to carry in the future. And this was at a time when newspapers, magazines, etc were billing Alan Greenspan as part of "the committee to save the world." No wonder people took his advice.
August 28, 2007 12:03 PM | Reply | Permalink
“Banks are not very good landlords and it is difficult for even a professional landlord to keep an empty property from deteriorating And when it does, as Dean (I think) pointed out above, the entire block is affected.
So banks won't be "encumbered " with an entrenched renter--they will have someone watching the property who actually cares. (it's his home and in many cases, he may plan on staying there and renting for a long time.)”
This is so naïve.
You presuppose that there is an excess supply of owner occupied housing for sale and that the foreclosed property cannot be resold. Do we know that? If that is true and there is a shortage of rental property in the area, why would not the lender sell the property to someone who wants to be in the landlord business? If there is an excess supply of rental housing as well, how is it helpful for government to forcibly create another unit?
The value of property is indeed encumbered by the renter since he has the right to stay there as long as he wishes and the rent he pays is determined by a third party. Is there any evidence that a privileged renter with no ownership interest in the property and a potentially adversarial relationship with the owner due to the foreclosure and his new privileged status will take better care of the property than any other renter?
I could go on. If you feel sorry for some people who can’t pay their mortgage, let’s just give them come cash and then get out of the way.
August 28, 2007 2:31 PM | Reply | Permalink
Again, you will pick my pocket to protect people who were irresponsible, and hose me over by propping up bubble prices. Penalize the adults for the sake of the immature.
Wonnerful.
Like I said, could you hold off on this policy for a month? Why should I be the sucker...I'll go buy that place in Ledroit I can't afford on a suicide loan, and you can give me a bailout!
August 28, 2007 3:44 PM | Reply | Permalink
Ellen,
you sound like an Economist, and I'm sure you didn't run that definition by Frank Luntz.
How does one know what "socio-economic-demographic group" one is in?
hold on, be right back.
ok, back. I went and asked my neighbor what Class he was in, lower,lower middle, middle or upper.
He said "Middle class"
I said; "So, 'You're within one standard deviation of the median household income
of your socio-economic-demographic group?'"
He replied: "Are you on drugs?"
August 28, 2007 4:52 PM | Reply | Permalink
He, unlike you, may not have known what a standard deviation was.
And too, you left out the "geo-," the most important part of my definition. Had you given him the whole enchilada, I'm certain all would have become manifestly clear to the poor fellow.
August 28, 2007 5:11 PM | Reply | Permalink
DAMN! I missed that "geo". be right back.
back!
Well, I gave him the "geo whole enchilada";
he chased me, saying: "I hate Mexican food!"
Um, Robert never replied to my request to him to define middle class, you did. :-)
August 29, 2007 7:01 AM | Reply | Permalink
Most people are not economists and don't know much of anything about interest rate cycles--which is why banks could sell adjustable rate mortages at a time when anyone who knew anything about interest rates was converting his mortgage to a fixed-rate loan
you may remember that Alan Greenspan was promoting them and said that "variable rate loans" are cheaper over the life of the loan.
of course, credit card rates only seem to go up and variable rates are used to pad profits.
at least, superficially, if the FED lowers interest rates, and ARM's follow, Greenspan could be right but I have a hard time believing that "savings" would be passed on.
To boldly go...
August 29, 2007 7:30 AM | Reply | Permalink
ARMs do follow downward, but of course they follow at a distance, reacting to reduced demand at higher rates.
MM did say "...I think it's worth noting that the chairman of our federal reserve (the Maestro) was urging people to take adjustable rate mortgages..."
August 29, 2007 7:42 AM | Reply | Permalink
Ellen’s definition sounds as good as any to me.
More importantly, joshua_g suggested the active governments create the middle class, you should ask him what his definitions is…exactly who are the wards of the state.
August 29, 2007 7:47 AM | Reply | Permalink
you may remember that Alan Greenspan was promoting them and said that "variable rate loans" are cheaper over the life of the loan.
I am sure Greenspan is correct…it’s the old risk/reward thingy. The caveat is that you need enough cash flow to meet the mortgage payments during periods of high interest rates.
August 29, 2007 7:53 AM | Reply | Permalink
Active government creating a middle class does not make them wards of the state. The people, the majority of which are not the elite, by definition, promulgate legislation. If the elite don't like it, they are free to politick, or leave. Apparently the majority if nonwards-of-state feel it's worth it to stay, with the exception of some corporations like our VP's company.
Shall we call the wealthy and large corporations wards of the state, since they receive unusual benefits not offered to most of us?
Please stop using incendiary terms like "wards of the state". I know, you'll say "But that's simply the accurate term." We could also say you're selfish, accurately, and claim it was not pejorative but a neutral description. Still it carrries a scolding tone, so I wouldn't do such. Oops, I already did, so I apologize.
The definition of the term includes referring to a child, and so your use is incorrect. It also implies, since it refers to a child, that the ward is not an economic contributor, so your use of it is misleading. Unless you're completely ignorant of the term's actual meaning, you use it to demean the people that you feel receive some unwarranted advantage. We take note of the insult.
August 29, 2007 8:05 AM | Reply | Permalink
So Greenspan should have, if he intended to give advice in the interest of mortgage purchasers, warned that one should only take an ARM for a lower-priced house, and use a fixed-rate mortgage for more expensive purchases. Unfortunately, it is precisely the more expensive house that had the buyer looking at the ARM in order to cover the payment.
The problem is that for most if us a house is not another investment, it's our home and should be a maximally safe investment. Some investments should always use the lowest-risk version, even though it is not the cheapest overall. This applies when a downside event is catastrophic, That is, if there is a lower limit, a threshold, below which activity stops, one can't risk that possibility. This applies to pension funds, for example, that are often tempted to increase through stock investing, but should resist the urge since a slump may kill the fund altogether. Fine for one investment out of many, but not fine if it's the sole instrument.
Of course Greesnpan would not have been in that situation, personally---his house would in fact have been only one onvestment of many. "Diversify" is the usual wisdom in investing, but if one cant', "low-risk" is the appropriate advice.
August 29, 2007 8:17 AM | Reply | Permalink
Again it is the risk/reward thingy.
If one is going to take on enough debt that ones cash flow is only marginally able to service that debt, one should pay more for a predictably interest rate. If one saves for a down payment and buys a smaller house than one could afford, an ARM may be appropriate.
It’s not real difficult.
August 29, 2007 8:53 AM | Reply | Permalink
I used “wards of the state” since that’s the way I think Joshua_g meant it. He certainly seemed to imply that an active government must transfer money from “the rich” to some of the lower class rabble to create the middle class and if they stopped doing so, society collapse into a feudal system. Perhaps I misunderstood him, he is welcome to come back and clarify if that is not what he meant.
August 29, 2007 9:02 AM | Reply | Permalink
Actually, this "define middle class" thread
started with your mentioning the middle class and my asking YOU to define "middle class". You have yet to supply your definition, not Ellen's.
August 29, 2007 9:19 AM | Reply | Permalink
Just can't avoid loaded terms, huh?
You put "rich" in quotes but not "rabble". And you've used "ward of the state" before, so I don't buy the excuse.
August 29, 2007 9:23 AM | Reply | Permalink
"lower class rabble" as opposed to upper class rabble? Gotcha.
They're rabble until it comes time to fight in a war to protect the upper class rabble
like the gang in the White House and the corporate board rooms.
August 29, 2007 9:27 AM | Reply | Permalink
Saying the same thing as before, you dodged my point.
An adviser acting in a client's interest should not advise risky actions if safety is better. I don't recall that Greenspan advised people to buy low, with a high-risk loan. So he was advising in the interests of banks, not buyers. I guess my mistake is thinking the Fed Chairman is acting in my interests.
It's unsupported to maintain that an ARM is likely to be cheaper over the life of a loan. There is no reliable physics to average out fluctuations. The upper limit on interest is unknowable, although the lower is something greater than zero. My mother's mortgage was 4% when I bought my first house, with a 13% loan. Her fixed-rate easily beat an ARM over the period during which she carried the mortgage.
An ARM is only suited to short-term speculation, period. If I was managing apartments I'd be terrified to carry an ARM, since there is no upper limit on interest costs.
August 29, 2007 9:34 AM | Reply | Permalink
I must say this guy is better than the ones usually assigned to TPMCafe.
.
sPh
August 29, 2007 9:34 AM | Reply | Permalink
Mention of the "Military-Industrial Complex" as reason for the Iraq War and the atrocities being done for its survival seems tough for the MSM to digest. Thus I am putting this item in the blogs for all to see:
Whistleblowers on Fraud in Iraq Facing Penalties
http://www.forbes.com/feeds/ap/2007/08/24/ap4052736.html
Sorry if it not directly pertinent to this item. But you have got to read it!
August 29, 2007 10:03 AM | Reply | Permalink
I don’t know if Greenspan actually recommended ARM. I would certainly consider that unethical and I suspect that claim is an exaggeration.
I think that it is reasonable to assert that an ARM will likely to be lower cost. A lender who offers a fixed interest rate over a thirty year period is betting on what interest rates will be over that time period and adding an interest rate risk factor. If you take an ARM, you are assuming the risk and do not have to pay the risk factor.
As you point out if your time horizon is short there is smaller risk in ARM. If I were managing apartments I would not fear an ARM since I could likely pass the increased interest rates along to my tenants since my lease periods would likely be a year or less. I need only carry enough cash reserves to cover the increased mortgage for that period of time. That does not mean that I would opt for an ARM. It is a business decision, but fear would not be involved in the decision.
Does that answer your concerns or are you still confused?
August 29, 2007 12:30 PM | Reply | Permalink
Lower interest rates?
How do we get the inflation train a-chuggin anymore than it already is?
August 29, 2007 12:45 PM | Reply | Permalink
This is getting a bit tiresome.
The start of this thread was a somewhat snaky reply that I made to joshua_g which I accidentally posted in the wrong hole. He suggested that active government created and maintains the middle class. So what I consider the middle class doesn’t really matter does it? I was responding to his concept of a middle class.
That said, I think Ruth’s definition of some deviation around the median income fits most peoples concepts of middle class. Of course that can be modified by ones financial obligations. It is easier to live a middle class life style if on is single than if one has a family, for example. In hard number numbers probably thirty thousand dollars to eighty thousand dollars annual income.
Now get off my back! :-)
August 29, 2007 12:47 PM | Reply | Permalink
Luckily we have these Internets tubes that George W. Bush plagiarized from Al Gore. Let's go to Google, type in "greenspan arm", and look at the second result. From February 23rd 2004:Innovative programs. Some exaggeration.
.
sPh
August 29, 2007 12:49 PM | Reply | Permalink
I was attempting to reflect the distain that Joshua_g seems to have for the non-rich. Assuming that an active government is required to herd them into the middle class.
August 29, 2007 12:53 PM | Reply | Permalink
.
And you have been given many forms and examples (here's another one:)But you know that. And you have chosen to attribute your personal straw-demons to posters at this site and then tilt at them with flaming copies of Atlas Shrugged . I am sure you are sincere.
.
sPh
August 29, 2007 1:17 PM | Reply | Permalink
The FED rate is one of the answers. They refuse to lower the rate because as they have publicly stated, "they are concerned about inflation". Well that is just what we need.
The FED focus has been keeping inflation artificially low for years. Inflation harms the banks but a little inflation is always good for the rest of the country with one huge caveat. Wages must inflate as well.
The lack of wage growth has been debated here as well as many other economic forums. It’s a complicated problem. Most traditional models (which I don't believe in) show wages rise along with inflation.
I think our largest problem has been the shifting of jobs overseas, the failure of large corporation from even pursuing domestic production, the complete absence of any domestic manufacturing to even provide any competitive bids, the failure of government intervention to ensure fair trade versus free trade and the deliberate sales job to most citizens by government and large corporations that inflation is bad and free trade is good.
I have only read Obama’s proposals which address these issues so I am unprepared to provide any informed opinion on other Democratic candidate positions. Obama’s proposals address may of the listed issues except for accepting some inflation is good.
Can we wait for January 20, 2009 for effective tactics to correct our problems?
I think the pain on the average citizen will be too severe to wait that long.
The MSM focus on the Dow Jones average as an indicator of economic health is completely misleading. Also, the concern over the health of hedge funds and large bank profits is a smokescreen to cover the impacts to average citizens.
The most immediate required actions are significant FED rate reductions and immediate Government action against Chinese and other South Asian imports to produce a better trade balance. This action on trade can be easily implemented as a response to the lack of safety oversight on Southeast Asian products. That action must be dramatic.
Two other Government actions would be announcements of specific large domestic infrastructure projects with costs offset by withdrawing from Iraq and a specific extremely low financing program for the construction of domestic production facilities.
To solve the immediate home valuation and foreclosure problems the Government should extend a program similar to the Veterans Home Loan program to all citizens. This combines a government guarantee of a small portion of every loan ($40,000 I believe) along with a set maximum interest rate; no variable or other weird financing schemes would be allowed.
This program would allow the variable rate homeowners to apply for refinancing to the set rate loans and the small partial loan guarantee would ease the risk to the mortgage companies. Borrowers would still have to qualify under these new terms.
This would weed out those truly unqualified borrowers for which foreclosure would be inevitable. It would allow those squeezed borrowers just floating on the edge to obtain rates which would allow them to survive. It would also through the small partial loan guarantee allow credit crunched borrowers to obtain just enough extra cash to eliminate credit card debt. Perhaps some mandatory national credit list could be established to prevent the issuance of any additional credit to these borrowers for a period of some time. This would help but not completely cure predatory credit card and loan programs.
This VA type loan program would have a sunset of one year.
Any comments?
August 29, 2007 2:11 PM | Reply | Permalink
"=== I don’t know if Greenspan actually recommended ARM. I would certainly consider that unethical and I suspect that claim is an exaggeration. ==="
Gee, I guess it wasn't an exaggeration after all :-)
August 29, 2007 2:55 PM | Reply | Permalink
Robert,
I think your going through this life with all that psychological baggage is some kind of purgatory for a past life.
August 29, 2007 2:59 PM | Reply | Permalink
Let's consider bailing out average citizens this time, instead of debt and security holders by the government buying the mortgage back securities for $0.25 to $0.40 on the dollar and granting the proportional reductions in value (after estimated transaction costs) to each mortgage borrower, renegotiating payments and interest rates.
Other financial bailouts have also result in windfalls. And, yes, these are "unfair" to the investors and banks who didn't assume these risk. Nevertheless, for the sake of markets, we allow them. Why not allow citizens to be the recipients of the unfair windfall this time?
August 29, 2007 3:22 PM | Reply | Permalink
Because we citizen who acted like adults shouldn't be on the hook to cover those who didn't?
August 29, 2007 9:06 PM | Reply | Permalink
Obviously, a 1% savings isn't that big a deal when compared to the higher tax bills that people are paying or the higher overall interest bill that rises with home prices.
IMO, if home prices "stayed high" and mortgages didn't have fixed rates, then the FED could manipulate "disposable income" by modulating mortgage rates.
thus, the downside of fixed rates-- in my mind, is the difficulty of only inflencing the economy's short term performance via manipulation of long term interest rates.
To boldly go...
August 30, 2007 12:12 AM | Reply | Permalink
Unfortunately, it is precisely the more expensive house that had the buyer looking at the ARM in order to cover the payment.
What's "expensive?" I've read about people getting an ARM on a $100,000 house and then losing it to foreclosure.
It used to be that "expensive" was three times your salary but the housing bubble forced bankers to look the other way because, otherwise, deals wouldn't happen.
To boldly go...
August 30, 2007 12:18 AM | Reply | Permalink
You are misinterpreting my original post.
I was responding to Daniel Greenbaum's almost-incoherent statement: "The paternalism toward the less than rich, which has the impact of deny many people a Middle Class life, endlessly fascinating." I pointed out that, without what Greenbaum (and you) refer to as "paternalism," there would be virtually no middle class at all.
This does not mean that people in the middle class are "wards of the state," nor am I attempting to deny them agency. Rather, it would be more accurate to say that democratic government is a vital tool used by the middle class in order to ensure its continued survival.
This need not always involve direct monetary transfers, though it sometimes does. Social Security is one example where this was indeed done. And it worked brilliantly: where once a majority of the elderly lived in poverty, today that has almost vanished and they have the highest income of any demographic group.
But most pro-middle-class government interventions did not involve simple cash transfers. Instead, they provided the middle class with resources they needed to better themselves, or with regulatory protections against rapacious corporate greed.
During the 19th century, the middle class was nurtured by the Homestead Act and the availability of cheap land on the frontier. This combination of scarce labor and abundant natural resources made America rich.
By 1900, the frontier had closed, and the middle class began to fall under attack from special interests: railroads, factory owners, immigrants. As a result, the middle class launched the Progressive Era to protect its interests through government regulation. We saw the first child labor laws (albeit on a state level), workers' compensation regulations, and, in the mid-1920s, an Immigration Act that largely stemmed the flow of cheap labor from overseas.
During the New Deal, this was further strengthened. Social Security virtually ended poverty among the elderly. The FDIC protected the middle class's savings from bank failures. Perhaps most importantly of all, the Wagner Act finally provided real labor protections to a large portion of the American workforce.
All of this contributed to the broad-based prosperity of the postwar era. The GI Bill enabled millions of veterans to attend college and enter the white-collar workforce. Meanwhile, blue-collar workers earned the highest wages they ever have, thanks to high union density spurred by the Wagner Act. Union power, combined with enforcement of antitrust regulation, kept business from growing too powerful relative to labor.
In the 1970s, this started to fall apart. And income inequality has been increasing ever since then, while median wages have stagnated.
The government is the only thing powerful enough to serve as a countervailing force to the malefactors of great wealth. Without it, the middle class will wither away, as we have been witnessing over the past three decades.
August 30, 2007 2:59 AM | Reply | Permalink
John,
I think you're comparing apples and oranges,
you're putting yourself in the same position as those who 'didn't act as adults.'
Were you in need of a mortgage?
Were you qualified for only a sub prime mortgage?
Were the people who signed on for sub prime mortgages as well educated in finance as you?
Sad to say, we're not all capable of protecting ourselves from the sharks in the water. And we're especially vulnerable when our backs are up gainst the wall and our options are extremely limited.
August 30, 2007 4:32 AM | Reply | Permalink
As I've noted above, I made a simple calculation. I compared my (well above average) income to prices in DC, and realized I couldn't afford to buy under adult standard ARMs or Fixed. So I didn't buy.
Meanwhile, tons of idiots did on I/O ARMS and other suicide loans. This drove up prices even more, and led to a spiral of stupidity as the bubble had ever increasing high incomes buying off suicide loans, which in turn drove up prices.
Now, all of adults who said no to suicide loans are potentially pricing back in as the bubble bursts. So folks like you want to basically use my and other adults money to bail out the suicide loan fools, in the process re-inflating the bubble and pricing us back out. A nice double whammy.
No thanks.
August 30, 2007 7:29 AM | Reply | Permalink
While I think that your's and Ellen's points deserve a much wider discussion in the liberal world, I would also offer this observation: there WILL be a bailout. History and power politics both tell us that. So, given that your tax dollars WILL be spent on a bailout do you think that the entire bailout should go to corporate financial institutions as has happened in the past, or that at least some of it should be funneled through individual Citizen?
Remember, "no bailout" is not an option.
sPh
August 30, 2007 7:37 AM | Reply | Permalink
Thanks for the clarification. I kinda thought that is what you had in mind.
I might quibble with the language: “active” government “creating” the middle class. I like to think of government setting the rules of engagement for economic competition and the people finding their own level under those rules. But, that is a rather fruitless academic debate.
Is Social Security really creating the middle class since it is transferring money from mostly the low and middle class to other people also in the middle class?
August 30, 2007 8:08 AM | Reply | Permalink
John, Christ, I said no such thing. I don't know how I could have made it any clearer that my point, my ONE and only point, was not everyone is as qualified as you or many others when it comes analyzing various type mortgages, or purchasing these mortgages from people who make it all sound so sunny.
I doubt all Americans are as capable as Alan Greenspan or Warren Buffet when it comes to market analysis.
By the way, I have no desire to get into your pocket for myself or for anyone else.
Live long and prosper with your money.
August 30, 2007 10:08 AM | Reply | Permalink
I reject your slanted question.
August 30, 2007 9:13 PM | Reply | Permalink
The program Bush announced today is nothing but a bank bailout.
The rhetoric on the little people was a typical faint to cover the real bailout to the large investors.
The Government is going to assume the risk from the Banks without providing any answers for the people.
August 31, 2007 2:30 PM | Reply | Permalink
A Derrida-dense piece in Le Monde diplomatique (via Truthout) spends a lot of time on the moral hazard that comes from bailing out the big players. What caught me, though, is the constant use the phrase "liquidity crisis".
Kind of creepy to hear a term from my American History textbook, associated with the Great Depression.
September 1, 2007 8:10 AM | Reply | Permalink