The Economic Mess is Directly Tied to the Activities of Obama

[ms61853]

http://corner.nationalreview.com/post/?q=ZDcyOGUwNDYzOTc3MTYyYmE4NTQwMDk2Y2MyMzBiODU=

Whether the McCain campaign should stress Obama's judgment/radical associations or the economy isn't an either-or proposition. McCain should do both. And as Stanley Kurtz demonstrates, McCain can do both at the same time.

Stanley distills the connection between the Obama/Ayers relationship and the economy as follows:

Obama and Ayers serve together on the Chicago Annenberg Challenge where they funnel tons of cash to finance ACORN —>

ACORN pressures banks (through, among other things,CRA-related complaints) to extend high risk mortgages to risky customers —>

ACORN also works with Democrats in Congress and others to pressure Fannie Mae and Freddie Mac to further loosen credit standards, spreading the contagion of high-risk credit practices to the broader financial markets —>

Subprime mess—credit markets emergency.

Of course, Stanley isn't contending that Obama—Ayers—ACORN is the cause of the economic collapse, but Obama and Ayers financed and worked with a core player in the subprime lending saga. It's a matter of radical relationships, dreadful judgment, and their impact on the real world.

And then there's ACORN's "voter registration efforts" . . .

[Mudcat]

We know. And he is responsible for the Hindenburg and how guys get a dual stream when they pee.

We know.

[JC]

http://corner.nationalreview.com/pos...k2Y2MyMzBiODU=

Whether the McCain campaign should stress Obama's judgment/radical associations or the economy isn't an either-or proposition. McCain should do both. And as Stanley Kurtz demonstrates, McCain can do both at the same time.

Stanley distills the connection between the Obama/Ayers relationship and the economy as follows:

Obama and Ayers serve together on the Chicago Annenberg Challenge where they funnel tons of cash to finance ACORN —>

ACORN pressures banks (through, among other things,CRA-related complaints) to extend high risk mortgages to risky customers —>

ACORN also works with Democrats in Congress and others to pressure Fannie Mae and Freddie Mac to further loosen credit standards, spreading the contagion of high-risk credit practices to the broader financial markets —>

Subprime mess—credit markets emergency.

Of course, Stanley isn't contending that Obama—Ayers—ACORN is the cause of the economic collapse, but Obama and Ayers financed and worked with a core player in the subprime lending saga. It's a matter of radical relationships, dreadful judgment, and their impact on the real world.

And then there's ACORN's "voter registration efforts" . . .

Thanks for the McCain camp's daily talking points.

You know nothing about markets, business, or human nature. Nobody coerced any bank to make a loan they didn't want to make. The banks made the loans because they were very profitable for a long time. They made the loans because they could sell them and have no risk. You think the banks made so much money for years because they were making loans they didn't want to make? They enjoyed it while things were hot.

If I could write risky loans all day and flip them I would do it until my head caved in. It's called making money. The buyers of this paper usually didn't care because they were flipping it to someone behind them. Blame the people who bought these things and planned on holding it because if that was your plan, it was quite a risk. Then again, that's why they paid a high return, until they didn't.

What about the credit default swaps? What do your talking points tell you about them? How did Obama cause that crisis? Credit default swaps were insurance policies insuring other firms counter party risk. It was a $66 trillion market in 2007. Firms like JP Morgan, which created the market, traded in and out of them. Firms like AIG were large net sellers. AIG and others sold more insurance than they could cover. Nothing to do with poor people or Obama, just poor risk management. All of these products work wonderfully when things are going well, but they are not pretty when they hit the tails of the bell curve. They either failed to price it in, or just ignored it because the present income was so good.

I posted this last week but perhaps you missed it.

http://www.newsweek.com/id/162789

Subprime Suspects
The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong.

Daniel Gross
Newsweek Web Exclusive
Oct 7, 2008 | Updated: 12:58 p.m. ET Oct 7, 2008
We've now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday's congressional roasting of Lehman Brothers CEO Richard Fuld, and continued on Tuesday with Capitol Hill solons delving into the failure of AIG. On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

The thesis is laid out almost daily on The Wall Street Journal editorial page and in the National Review. Washington Post columnist Charles Krauthammer provides an excellent example, writing that "much of this crisis was brought upon us by the good intentions of good people." He continues: "For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." The subtext: if only Congress didn't force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel's Neil Cavuto put it: "I don't remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."

Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?

These arguments are generally made by people who read the editorial page of The Wall Street Journal, and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.

Here's why.

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply. There's much more. As Barry Ritholtz notes in his fine rant, the CRA didn't force mortgage companies to offer loans for no-money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on subprime debt.

Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending. WCI Communities, builder of highly amenitized condos in Florida (no subprime purchasers welcome there), filed for bankruptcy in August. Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities. The multi-year plague that has been documented in brilliant detail at IrvineHousingBlog is playing out in one of the least subprime housing markets in the nation.

Third, lending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as The New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.

On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Brothers, or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity. And, here, again, it's difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33:1, that instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients money, and that required its septuagenarian CEO to play bridge while his company ran into trouble. Perhaps Neil Cavuto knows which CRA clause required Lehman Brothers to borrow hundreds of billions of dollars in short-term debt in the capital markets and then buy tens of billions of dollars of commercial real estate at the top of the market. I can't find it. Did AIG plunge into the credit-default swaps business with abandon because ACORN members picketed its offices? Please. How about the hundreds of billions of dollars of leveraged loans—loans banks committed to private equity firms that wanted to conduct leveraged buyouts of retailers, restaurant companies, and industrial firms? Many of those are going bad now, too. Is that Bill Clinton's fault?

Look. There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb lending virus originated in Greenwich, Ct., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.

At Monday's hearing, Republican Rep. John Mica of Florida gamely tried to pin Lehman's demise on Fannie and Freddie. After comparing Lehman's small political contributions to Fannie and Freddie's much larger ones, Mica asked Fuld what role Fannie and Freddie's failure played in Lehman's demise. Fuld's response: "de minimis."

Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.

[ms61853]

Look. There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part.

These high risk loans were simply not made until these community organizers started pressuring banks to make them. That's what the author won't come out and say.

[Bluehorseshoe]

Who does Obama like in the Texas/Oklahoma game?

I'm going to fade him.

[JC]

These high risk loans were simply not made until these community organizers started pressuring banks to make them. That's what the author won't come out and say.

Nonsense.

You don't think the banks made a lot of money on these loans? They did, that's why they kept making them. Look at how much money they were making before things went bad. You might even say the banks were addicted to these loans.

Why would the banks need to be pressured? They could make the loans and flip them.

Did you read the rest of the article?

I'll say it again. You know absolutely nothing about markets, business or human nature.

You and your people are really reaching these days. The desperation is oozing out of every orifice.

[HAPPY BOY]

You give poor people houses they can't afford this is what happens.

[ms61853]

Nonsense.

You don't think the banks made a lot of money on these loans? They did, that's why they kept making them. Look at how much money they were making before things went bad. You might even say the banks were addicted to these loans.

Why would the banks need to be pressured? They could make the loans and flip them.

Did you read the rest of the article?

I'll say it again. You know absolutely nothing about markets, business or human nature.

You and your people are really reaching these days. The desperation is oozing out of every orifice.

I have no doubt that many financial institutions jumped on the sub prime bandwagon, especially with a housing bubble meaning that if they had to foreclose., they were still likely to get a profit.

The bottom line is none of this was going on until Clinton aggressively pushed the CRA and rogue groups like ACORN started pressuring banks.

[HAPPY BOY]

Once Goverment gets its hands on private business its sure to fail,

[Helmut]

What a stupid post.

[RageWizard]

You forgot to mention the other half of the story. Bush was smitten with the idea of being able to tell everyone that more people own houses than ever. He went along with the deregulation of the investment banks, at Paulson's urging so that Paulson and his friends could make a shit load of money on oil futures for the banks holding mortgages. A practice that was banned after the first depression. I'm not sure but I think they call it the Glass Siegal act, or something like that. Anyway, Paulson is the one who came up with the idea for mortgage backed securities that could get a good credit rating and thus be sold out to the world as good paper.

[ms61853]

You forgot to mention the other half of the story. Bush was smitten with the idea of being able to tell everyone that more people own houses than ever. He went along with the deregulation of the investment banks, at Paulson's urging so that Paulson and his friends could make a shit load of money on oil futures for the banks holding mortgages. A practice that was banned after the first depression. I'm not sure but I think they call it the Glass Siegal act, or something like that. Anyway, Paulson is the one who came up with the idea for mortgage backed securities that could get a good credit rating and thus be sold out to the world as good paper.

http://www.whitehouse.gov/news/releases/2007/12/20071206-9.html

What I see is Bush trying to address the problem.

[RageWizard]

He should address the problem by doning nothing. Let the banks go under. The people who can't get credit are the ones that shouldn't be getting credit in the first place.

[wtf]

your right, if you do not let the banks fail american banks will end up like japan. never loaning to anyone only to other large entities. you know the japanese market was 36,000 at one time, 8k now. they have been stagnent for over a decade now. america could endure a simlar fate.