From bitter-clinging, two-digit teabagger John Stossel, Christhumping in Reason:
Bernie Madoff took money from people who thought he’d invested it, gave some to others who thought it was a partial return on their earlier investments, and kept much for himself. That’s called a Ponzi scheme, and his $50 billion fraud was called the biggest ever. But it wasn’t the biggest. Social Security and Medicare are much bigger ones.
These are trillion-dollar scams. Medicare has a $36 trillion unfunded liability. Social Security’s is $8 trillion. There’s no money to keep those promises.
But Congress isn’t investigating this scam. Congress runs it.
[…]
Social and Medicare right now consume almost half the federal budget. In coming years, if nothing changes, they will swallow nearly the whole thing. But since Congress will want to spend money on all the other things it now buys—not to mention a new medical entitlement—the government will either have to raise taxes to stratospheric heights, borrow like crazy, or inflate the dollar. Whichever it chooses, we’ll have serious problems.
Higher taxes are not a good solution because taxation suppresses economic activity by transferring capital to politicians. Yet our only hope is a sustained economic boom.
As Rep. Paul Ryan (R-Wis.), points out: “You literally cannot tax your way out of this problem. It’s not mathematically possible. … You wipe out the middle class.”
Well, how about borrowing? That might mean raising interest rates, which, again, would depress economic activity. Even then, lenders such as China may soon be too nervous to lend Uncle Sam more money. Moody’s recently announced it might downgrade America’s credit rating.
The most likely outcome is that the Fed will print more money, inflating the currency, so that the creditors are paid with less-valuable dollars. Our purchasing power will disappear.
The architects of the welfare state sure have left us a big mess. Yet hardly anyone talks about entitlements, except to add new ones.
[Mercatus Center economist Veronique] de Rugy asks: Why can’t people take care of their own retirement by investing the money government now takes? Had we done this all along, the looming problem would have been averted. Instead, “We’re about to witness the biggest, most massive transfer of wealth from the relatively young and poor people of society to the relatively old and wealthy people in society.”
Our forefathers would be appalled. After the American Revolution, when the new government was debating how to pay its bills, George Washington said this about a national debt: “We should avoid ungenerously throwing upon posterity … the burden we ourselves ought to bear.” Well, we sure are dumping my generation’s debt onto posterity. I wish we had more politicians like George Washington.
Bosh. Platitudes about old white patriarchs who kept slaves and wrote flawed documents, is all this is — coded racial hate speech aimed at destroying a good man, who is doing the long overdue work of social justice, just because he’s black. The threat of violence permeating this piece is palpable; and were they smart, Republicans would condemn such sentiments immediately and in no uncertain terms.
Tell me: WHY DOES JOHN STOSSEL HATE CHILDREN AND THE POOR?
Racist.
More like this, please. Shine a light on Congress, and watch the vermin scatter.
Paul Ryan is the dreamiest.
“We’re about to witness the biggest, most massive transfer of wealth from the relatively young and poor people of society to the relatively old and wealthy people in society.”
Those boomers would take the bread from kindergarteners to get their social security.
Yeah, that includes you too Darleen. Although you would then probably make PB&Js for all the kids in the neighborhood.
The taxings are designed to catch more people once the inflationings begin.
Out faggot president is planting bombs I think. Bombs of poverty and indentured servitudes.
Which, that’s a dick move I think.
Papa Broc gonna make everything all right. I ain’t worried.
Tell me: WHY DOES JOHN STOSSEL HATE CHILDREN AND THE POOR?
It’s the mustache. John Bolton too. Dick Cheney just hides his with the proper Just For Men Beard and Mustache coloring to match his complexion. (Yeah, I didn’t know they made a old white guy color shade, either.)
Damn you, agile_dog, I was going to fault the ‘stache and offer Bolton as an example, too.
Gettin’ slow in my old age…
Hey! Lay off the mustache. I hate kids and the poor for other reasons–you can’t get votes and graft from kids or the poor.
No. I’m just being driven by my racism and hateyness. It sharpens the mind’s eye.
Suddenly, Corey Haim’s future doesn’t look so bleak.
you can’t get votes and graft from kids or the poor
No, but you can hide behind them and use them as political human shields. Ask Harry and Nancy about that.
The Washington quote is from his Farewell Address,, btw.
That last bit no doubt prompted by his bitter memory of how tough he had to get during the Whiskey Rebellion. But it’s still a far cry from the modern attitude of viewing taxes as money to be flung out of the back of a speeding train.
Whoah, hyperlink overload!
John Stossel is a racist for bringing this up. he should just keep his mouth shut.
He is racist to oppose this groundbreaking civil rights legislation.
I sometimes wonder at what level one must explain things to people who don’t see this as a problem. For instance, when we mention “the Fed will print more money” are we sure that a large segment of society doesn’t take that to mean that suddenly there will be more wealth, problem solved? Are we sure that people understand what influences the costs of carrying debt and the immediate ramifications?
Our unfunded liabilities and their magnitude are evident to us. Yet they aren’t to others, apparently. What are they missing? What could we say to make the cartoon lightbulb light up above their head?
when we mention “the Fed will print more money” are we sure that a large segment of society doesn’t take that to mean that suddenly there will be more wealth, problem solved?
They honestly don’t know where the money comes from. They don’t understand that paper money is a token of wealth and not wealth itself.
I heard one economist (Sowell? Williams?) try to explain how if you add more money to a Monopoly game, all of the money is worth less than before. But that analogy doesn’t work, because Monopoly money isn’t worth anything to begin with and you’re not buying real goods.
This is how you explain it:
Say you have a bottle of medicine and the normal dose is two spoonfuls.
Now imagine that the druggist pours out half the medicine and fills the rest with water. Will those two spoonfuls have the same salutory effect as before?
What if he pours out 3/4 of the medicine? 7/8?
Printing money is like watering down the medicine. If it’s a particularly tough crowd, change it to a fifth of Jack and the amount it takes to get a buzz.
For instance, when we mention “the Fed will print more money” are we sure that a large segment of society doesn’t take that to mean that suddenly there will be more wealth, problem solved?
I’ve been joking that the Democrats’ campaign slogan in 2012 will be “Vote Democrat — we’ve made everyone into millionaires!”
dicentra
The medicine analogy is weakened by the fact that the size of the bottle is a limitation that is not present in the real world. We need something more open ended that can still be diluted. Perhaps something along the lines of the number of hours between when you awake and when you can go back to sleep.
repeal obama care pledge
I was going to become a wallet-maker, but I guess I should build wheelbarrows instead.
wheelbarrows of dollars for a loaf of bread
Hey! Lay off the mustache. I hate kids and the poor for other reasons–you can’t get votes and graft from kids or the poor.
Of course, you can always use kids and the poor to get votes and graft. That I like. I like it a lot.
Try winning a game of Monopoly with that attitude.
Oh the Humanity!
Pain Train is a Come’n…
“As Rep. Paul Ryan (R-Wis.), points out: “You literally cannot tax your way out of this problem. It’s not mathematically possible. … You wipe out the middle class.””
Now we know why he supports entitlements that don’t have any taxes.
Address the problem if you can, kdash.
Mugabe is a Democrat? Who knew?
Paul Ryan is also a vicious racist because he opposes this groundbreaking civil rights legislation.
In fact, ALL REPUBLICANS ARE CLASSIFIED AS RACIST. It can’t be long that the government will note that anyone who resists is racist.
It’s what you lefties want. It’s what gets taught to kids, to everybody through television and print media.
You guys suck shit.
Hey, Congress has it rough. They have to figure out how much of your money to give to other people who haven’t done shit for it. That is no easy task.
Don’t know if Mugabe is a Democrat, but he is definitely a Progressive.
How governments deal with allocation of resources. Heath-care, education, water, it’s the way of power, always.
kyphen,
Help me out here, mate, ‘cuz I’m kinda slow and stupid. Are you saying that what Rep. Ryan said is wrong? Or is he exactly right in this instance, even though he’s been wrong on other things? Or are you just pretending to a level of sophistication that you don’t actually possess?
Just imagine all of the capital reserves that banks might have if all of that money had been saved privately, instead of sent to DC for the politicians to blow…
But, you know, some people wouldn’t have had the discipleine to save, while they were makin’ hay and the sun shinin’. Who would have saved them from themselves?
I mean, multiple generations of family might have still had to live together, intergenerational wisdom and experience might have been exchanged more freely, reckless and bad behavior would have been tolerated and facilitated less, and the fabric of the family, and through that society, might have remained stronger.
Naaaaaaaah. Then there would have just been more Raaaaaaaaacists! opposing socialists like O! & Co
Don’t you have cats to groom kdash/parsnip?
I am lathered up in my outrage and ready for my fish oil enema Mr. Kaufman. I am flushed with excitment and bellowing like the bell of the beach. My musk glands are dripping in anticipation of your forbidden touch. Oh wait, this is not Acephalous?
we interrupt this thread to bring you this “sad” news:
David Frum Canned at AEI
Frum Resigned, he was not canned! Ooooooooutrage! My musk is flowing hard and the capillaries in my folds of fat are flushing pink. Ooooooooutrage!
I don’t like things that try and enforce some sort of party orthodoxy.
To be frank, Frum isn’t very much of a pro-liberty guy, loves himself some big, big government, it’s just that htis seems like something the Left would do.
The medicine analogy is weakened by the fact that the size of the bottle is a limitation that is not present in the real world.
Except, isn’t the amount of existing wealth at any given moment a specific quantity (hard though it may be to measure)?
Try winning a game of Monopoly with that attitude.
Whoa. No wonder…
the fabric of the family, and through that society, might have remained stronger.
Strong families are a threat to the power of the state. But you knew that.
I don’t like things that try and enforce some sort of party orthodoxy… it seems like something the Left would do.
There may be more to the story than we know (there usually is). But AEI has a particular mission, and if Frum is no long on board (or is even undermining it), then they ought to part ways, regardless of who initiates it.
Frum still believes in an axis of evil, but it is now Rush, Levin, and Palin.
For instance, when we mention “the Fed will print more money” are we sure that a large segment of society doesn’t take that to mean that suddenly there will be more wealth, problem solved?
Alas, you are correct, because Economics is not discussed in high schools any more and the colleges are filled with Keynesians. I had Econ as a junior in my tiny rural Missouri high school in 1977 at the nativity of the Carter Era inflation. Of course, because I was learning that printing money ain’t the answer, I couldn’t learn about the wonders of diversity.
Damn my bad luck.
Regards.
“the government will _either_ have to raise taxes to stratospheric heights, borrow like crazy, or inflate the dollar.” Either? No, it will have to do all three. :(
“No, it will have to do all three. :(“
They will enjoy doing all three. “Haves” got nothing to do with it. Joy of spending does a bit though.
The rubes think this is all accidental. That is so sweet.
I love the smell of naivete in the morning.
dicentra, I like the medicine bottle analogy a lot. The bigger problem I see is the fact that a good number of people really believe that the government has its own money. They simply don’t understand that what the government has it took from taxpayers.
And, DC works hard to maintain that ignorance. Just look at the Census letter. We are told that it’s important to fill it out to “help each community get its fair share of government funds for highways, schools, health facilities, and many other programs you and your neighbors need.”
What if it had said that it’s important to “take taxpayers’ money to fund the underperforming services that we impose on you, but that we have trained you to expect. Fill this out so that you don’t get shorted on the chance to apply taxpayer funds to the programs and follies of your choosing?”
Personal experience tells me that many people truly believe that the government has a big pot of cash, and all you need to do is make a proper appeal for a share of it.
obama’s stash
It’s awesome how out of control the lefties have made the government. Just like they have elsewhere.
See lefty imbeciles, we know why you do things, we know who you are.
I think we’d be wise to distinguish between the ignorant and the malicious.
Person thinking there can be a free lunch: ignorant. Might be educated.
Person offering that make believe free lunch: malicious. Must be defeated.
The Left: No, we really love you middle class people, but here, here is a large rusty piece of steel in the ass. Hope you didn’t notice, look at those racists.
Di- you are made of awesome sauce! I’m going to have to remember that for my liberal friends.
funny thing today, we were talking about censorship today in my Art History class and we got on the subject of Nazi art censorship, and the professor brought up a german artist, who was also a Nazi, and was conservative. So to college professors, Conservative = Nazi. You can’t make this sh*t up.
My plan? GALT and gardens,hunting as needed. I can start a fire, Hell, lookk at what Heinloen said….conning a ship though? Nah, not so much.
Wouldn;t be a BLITZ post without typos
Crap…see what I mean?
Reverend? you;re preaching to the Choir. Fact is, we;ve known this and have been unable to stop it since FDR
Guns,Galt….nothing else will suffice. Voting does not work, nor do the demonstrations in the Capitol and in the Town hall meetings…
Guns and Galt. That is all
Depends on the accountant. Specifically, how do they account for bubbles(credit)?
As a non accountant layman, I’d suggest just taking money that’s in the bloody banks, subtracting liabilities, Then coming up with a number?
Again, I’m a moron, so….
Except, isn’t the amount of existing wealth at any given moment a specific quantity (hard though it may be to measure)?
True, at any point you could theoretically stop time and measure the specific quantity of wealth.
Theoretically? they do. Please tel me why they keep doing it in 2008?
the obama gang:
link
It might be proper to say that wealth (after deciding on a definition) is of a specific quantity. However, the valuation of that wealth in not intrinsic and requires transactions.
Take, for instance, a priceless painting. It represents wealth but how much? We can only know by creating a transaction.
in not=is not, above.
it represents wealth because art is extraneous to survival
Huh?
can you eat art?
Just imagine all of the capital reserves that banks might have if all of that money had been saved privately, instead of sent to DC for the politicians to blow…
Yes, more money banks could have used to buy worthless derivatives and CDOs. My father can’t retire b/c his 401K still hasn’t recovered from the crash . . . it would be a lot worse if he didn’t have social security. The whole point of it is to protect us form the vagaries of the market.
But, you know, some people wouldn’t have had the discipleine to save, while they were makin’ hay and the sun shinin’. Who would have saved them from themselves?
Actually, most people – that’s why people in this country have a negative savings rate and have accrued so much debt. If the collapse of 2008 taught us anything it’s that people don’t make purely rational economic decisions or think in the longterm.
You will all face my wrath. Or at least smell my musk.
with distortions provided by the cloward piven demorats
I’m not saying that art doesn’t represent wealth. (I’m unlikely to agree on “required for survival” as anything but a later distinction between degrees of elastic or inelastic, in any case.)
I’m saying that we arrive at valuations through transactions. That if we took a time out to assess wealth, I wouldn’t trust what an art appraiser said, I’d trust what an auction said. Even then, as RTO points out, bubbles happen and with them transactions that we realize are off with hindsight.
I guess I’m just trying to say that this isn’t as easy as saying time out and counting apples in a basket.
huh?
How about this: wealth is fuzzy. We can theoretically conceive of an aggregate total but what we’ll find is that we’ll end up with an answer that exactly matches our initial definition and our methodology.
Thinking about it, thre’s also a distinction to be made between actual and potential wealth. Kind of like energy.
Thiink about those folks who go to the antiques road show, or find an Old Master in their attic…..
Don’t think any of it affects the analogy though. There are no historical examples I can think of, of the wealth pool expanding so fast it lead to deflation.
As for the definition of wealth, I’d suggest keeping it simple and just using Smith’s which is “the annual produce of the land and labour of the society.”
newrouter: there have been crashes and panics since the advent of capitalism – I think it would be hard to blame, say, the Panic of 1907 on government-induced market distortions. And I’ll also point out that, after the New Deal, America saw 40+ straight years of economic growth and nary a financial panic until Black Monday in 1987.
puts me once again in mind of Putney Swope: “And remember, you can’t eat an air-conditioner.”
I’m not used to thinking of wealth as having something to do with whether or not something is required for survival, newrouter. To the degree that it fits into my framework, it does so in terms of price elasticity of demand.
you are an economic idiot
Frum is right, you are wrong! Smell my musk? It will influence you.
wealth is what you have left over after subtracting survival.
65. Yes, more money banks could have used to buy worthless derivatives and CDOs. My father can’t retire b/c his 401K still hasn’t recovered from the crash . . . it would be a lot worse if he didn’t have social security. The whole point of it is to protect us form the vagaries of the market.
The whole point of “what”?
Of Social Security age? Yet still risking his principle in the stock market? Instead of nesting it into tax-free state bonds or dividend paying utilities? Let me guess, that yield was too low? I suppose the rest was diversified in the lottery.
But, you know, some people wouldn’t have had the discipleine to save, while they were makin’ hay and the sun shinin’. Who would have saved them from themselves?
Well, where were you, oh smart and dutiful son?
Why exactly is this problem in my inbox?
Oh, and if pops can’t retire today, wait til he gets his share of the entitlement tab tomorrow.
gov’t doesn’t have economic corrections until they become greece or california
How about a little fucking drama?
newrouter: I guess when the facts aren’t on your side, you retreat to ad-hominems. How am I an idiot? Am I incorrect in saying that there hasn’t been a single financial panic/market crash between 1945 and 1987? That there wasn’t robust economic growth in that same time period?
We think about wealth differently then, newrouter.
Makewi, that would leave out pre-existing assets for one.
Quite simply put, wealth is easier to conceive of than to define rigorously. We make choices in our definitions. It’s inescapable.
73. Comment by Brandon on 3/25 @ 6:19 pm #
newrouter: there have been crashes and panics since the advent of capitalism – I think it would be hard to blame, say, the Panic of 1907 on government-induced market distortions. And I’ll also point out that, after the New Deal, America saw 40+ straight years of economic growth and nary a financial panic until Black Monday in 1987.
No shit. You must have been studying abroad in 1937.
That’s after WWII which helped our economy in that our main competitors were in ruins. Then there were the financially wonderful 70’s.
Oh, and from an earlier comment, does the savings rate include all that IRA/401k money that Americans have stashed away? How about that “forced saving” of the FICA tax. Quotes because that money was spent and is now in non-marketable, non-full faith and credit, special Treasury bonds. Sub-Junk ZZZ.
nah wealth is whats left after food clothing shelter. what that wealth is, is determined by the market.
did we know this?
Indeed. The same goes for labor or services. If I outlaw an activity, I’m just not counting it. People pay for prostitution. Do I count that or not?
How about resources? We have vast amounts of energy reserves here. So I should count them. But we don’t have the political will to extract them. So I shouldn’t count them.
Tricky business.
read up on the depression of 1920
#76
I was going to be more polite, but the answer would have amounted to the same thing.
After all Brandon, there is only a fixed amount of wealth in the world and rich people are stealing your share.
Well, we disagree then, newrouter.
No biggie. People disagree on this stuff almost as a rule, not as an exception.
Oh yeah. Anybody want to buy a couple of Mississippi tug boats. 78 feet long. I get a commission is why I’m askin’.
Makewi, that would leave out pre-existing assets for one.
Yes and No. If the pre-existing assets are utilized in the creation of wealth (say rental properties) then their value was counted once on it’s creation and it’s contribution to new wealth is counted every year it continues to contribute. If you don’t work it this way, how do you determine which part of the pre-existing assets are just dead weight, like abandoned apartment buildings or most modern art?
I was just pointing out that the definition was a yearly output, Makewi. We’d both agree that it’s a n+1 affair, in reality.
i think so. my position is less theoretical than yours though. godspeed to you.
“The Treasury is not a depository institution, so a payment by the Treasury to the public (for example, a Social Security payment) raises the volume of Federal Reserve balances available to depository institutions.”
-From the Federal Reserve System Purposes and Functions manual.
tThere is no such thing as insolvency with a non convertible fiat currency.
does the savings rate include all that IRA/401k money that Americans have stashed away? How about that “forced saving” of the FICA tax. Quotes because that money was spent and is now in non-marketable, non-full faith and credit, special Treasury bonds. Sub-Junk ZZZ.
Yes – on average people have more debt than savings. Most don’t contribute near as much as they could or should to 401ks anyway and most business aren’t matching either.
newrouter: I’m not sure what the depression of 1920 has to do with this?
Rusty: again with the ad-hominems. I believe in solid and robust safety nets as do the vast majority of Americans.
n
That is to say, Makewi, I think Smith was talking more along the lines of what we’d consider GDP rather than aggregate wealth.
Maybe, newrouter, and my standard caveat that I might be entirely wrong always applies.
“And I’ll also point out that, after the New Deal, America saw 40+ straight years of economic growth and nary a financial panic until Black Monday in 1987.”
Really Brandon,
Pull back on the revisionism hoss…
What about the 1937 recession? Or 1948, ’53, ’58, ’60, ’69, ’73, and ’80? And how is it that aggregate wages in 1939 were less than in 1919? What brought about economic growth again? WWII, not the “New Deal”; the ruin that the European and Japanese economies lay in after the war not anything that socialist FDR did.
And as to your earlier comment, there wouldn’t have been any crappy derivitives if the government hadn’t essentially mandated them via CRA; nor nearly as many if Clinton hadn’t “put the pedal to the metal” and dramatically increased the percentage of sub-prime loans that they purchased or bundled yearly.
If they hadn’t been mandated, they wouldn’t have existed. And the lack of frugality and savings on the part of Americans is a relatively recent phenomenon. You see, people used to have to save their money to buy things, instead of maxxing out the credit cards, or getting it from Mommy and Daddy…
You gotta bring your “A” game when you try to troll PW, Homes.
I agree bh. I’m at a bit of a loss as to how you would measure the actual wealth of the nation at any given time. For example do you count houses as depreciable assets, count them at their current assessed value, or count them based on their likely sale value? How do you even begin to calculate secondary markets?
wilsonian policies rectified. woody was a progg
I think “solid and robust safety nets” means – “I expect the lot of you to pay for Pops. I ain’t gonna help…”
Absolutely, Makewi. It’s all tricky. That’s why guys like Hayek who remind us of all we don’t know and how much of it is wildly complex are so valuable.
In the private world, debt only matters as it relates to assets and cash flow to service the debt. Savings is only one asset. If by negative saving rate you are saying that people owe more in debt than they have in savings, that is probably true for some perhaps many.
Having more debt than you have assets and/or not having the cash flow to service the debt is when you have trouble. The bad economy has put more into that category than were there earlier.
Bob Reed, More than happy to bring the A game. Yes, you’re right, there were recessions – I was wrong. But, they were on average much shorter and much less severe than those that took place prior to the New Deal.
Now as for the CRA. First, even if we blame the CRA for all the bad loans, it did not require banks to sell derivatives of those loans, much less to buy them, much less to be leveraged 30:1 like Merrill Lynch was. Second, to blame the 2007 recession on a law passed in 1977 is ridiculous – you need a somewhat better account of the causality. And, at least half of the subprime loans were made by banks not subject to the CRA. And, I think it’s ironic in a discussion about entitlements that you’re basically saying that the government should have *protected wall street traders from themselves.*
there wouldn’t have been any crappy derivitives if the government hadn’t essentially mandated them via CRA; nor nearly as many if Clinton hadn’t “put the pedal to the metal” and dramatically increased the percentage of sub-prime loans that they purchased or bundled yearly.
This is the key point. Sure, some businessmen did stupid, bad things. They will do that. But the government set up a regulatory system which encouraged and rewarded, and sometimes even forced, them to do those things. It is because the finance market was over-regulated that we had the bubble. You might say that it was also under-regulated if you mean that given the distorting regulations it would have been better to have additional regulations preventing the bubble. But this doesn’t imply that it was not over-regulated. It was under-regulated, in a qualified sense, but it was over-regulated, simpliciter.
“I believe in solid and robust safety nets as do the vast majority of Americans.”
Reads:
“I believe in vast and insolvent safety nets as do the vast majority of idiot Democrats.”
Jim, I lost you at the end, there but I’ll do my best: again, it seems that blaming the CRA for the crash is like blaming handgun manufacturers for murderers. The CRA – when it was passed – was not a regulation since there was separation betwen the holding banks that made loans and the investment banks that sold financial products. That changed with the repeal of Glass-Steagal. Again: while the CRA regulates the underwriting of mortgages, it does nothing to regulate what banks do with their mortgage debt. As far as it being over-regulated, that’s factually incorrect: the Commodity Futures Modernization law ensured that credit-default swaps would remain unregulated, essentially created a shadow-banking system that was not subject to any sort of oversight.
depression of 1920. fu progg
the “recession” is 2008 loser. and yes acorn, barney frank, and demorats pushed this cloward-piven strategy like they did in nyc in the 1970’s.
1920 is before the New Deal. And really – I’m being as polite as I can. There’s no need for being that rude. I’m interested in having this discussion – I’m not trolling, I’m respectfully disagreeing and trying to support my point of view with evidence and argument.
Sources, sources, sources, Hmmmmmm. what do all these sources have in common. Oh, right expertise, of a certain order.
Well, the National Bureau of Economic Research said it started in 2007. And again, what was it exactly that Acorn and Barney Frank did? Did they force banks to buy worthless derivatives?
so a comparison between progg economics and real world economics is hateful?
as spock says fascinating
geoffb, your arguments amount to ad-hominems. I can find these same arguments in Newsweek: http://www.newsweek.com/id/162789 – you can rail against the ‘liberal media’ all you want, but name-calling doesn’t refute the arguments they’re making.
Brandon, the practice of sub-prime loans essentially did not exist until created to fullfill CRA mandates. Prior to that, unless you recieved a VA benefit or qualified for an FHA program you were expected to have anywhere between a 10 to 20 percent downpayment in order to get into real estate.
CRA began with a ratio of sub-prime to prime mortgages that could have been underwritten by the profits made by Fannie/Freddie in handling and packaging the loans as well as selling bonds; a rate of 5%, or less, of their yearly portfolio of loans bought or bundled. But during President Clintons years that rate was increased to nearly 50%; because of the justice! As the percentage of sketchy loans bundled with traditional ones increased, that increased “risk” was reflected in the interest rated paid on the different tranches of the bundle that investors bought, with some of the riskier, long-term tranches paying double-digit rates.
And, yes Brandon, CRA did incentivize banks to both sell and buy the bundled loans; by implicitly guaranteeing the bundles with the full faith and credit if the US government as well as granting groups such as ACORN, or those that Obama agitated for, to block the growth, merger, or expansion of the bank, ir just delay it for interminable periods, by complaining to FHA that the bank was somehow discriminating against preferred victim groups by not making as many loans as the “community organizers” felt was indicitave of their devotion to “social justice”. So between the de-facto high yield government bonds, and the community
agitatorsorganizers “mau-mauing the flack catchers”, it’s hard to blame the institutions for buying into the who con.When the defaults got so high that the CDS issued by AIG and other insurance companies had to pay off on the insurance they sold for the Mortgage Backed Securities, the risk of-and reserves held against- defaults that was groosly underrated by the 3 ratings agencies is what ultimately caused the credit crunch. And, the fact that there was so much crappy paper in circulation was due to CRA and the activities of Fannie/Freddie.
That’s the cliff notes of how a 1977 law is in large part to blame for the housing bubble and 2007 recession.
Oh, and the high leverage rates of commercial banks is due to Basel II accords; the leverage at Merrill was due to hubris-and counting on loans from commercial banks to carry them through.
But they didn’t have 70% of their assets in sub-prime bundles, like Bear-Stearns.
And no, I don’t think that government should have protected Wall street from themselves. To the contrary, the government should have allowed all of the firms that assumed so much risk as to be existentially threatening in the event of default to fail. But I’m a hard ass, and there was a lot of winking and nodding going on between the GSE’s and financial institutions.
no, the comparison isn’t hateful. Saying “fu progg” is.
what is acorn for? why did they bus people to protest “rich” people? why are acorn “disbanding”?
97.Comment by Brandon
Rusty: again with the ad-hominems. I believe in solid and robust safety nets as do the vast majority of Americans.
I do too which is why I don’t trust the government with my money. Sorry if your beliefs are different.
BTW All the money you “contributed” will be gone in the first 7 and a half years after you retire. After that you’re spending a younger generations money.
Brandon, let me try to help a bit.
First of all, most of us are pretty damn annoyed over the health care laws, and are on edge just a tad.
Second, you came in and made an ignorant statement about the state of the economy from the New Deal until 2007 (or whenever you said, I’m too lazy to check). You are either very young or have managed to forget some of the terrible economic times we have been in during that interval. I remember the Carter years when home loans were over 12%. I forget the peak because I was only 10 when he was elected.
Third, if I’m not mistaken you mentioned you like a robust safety net. That means you like the idea of taking money from me to save other people from their stupidity. You won’t find many fans of that kind of thing around here.
Fourth, as Bob has already shown, the CRA was quite influential in the creation of the 2007 meltdown. There were some other stupidities involved, such as allowing the leverages to go to 1 in 40 which is insane, but the foundation for failure was in the CRA. Giving loans to people who probably cannot pay them back is a bad idea.
Finally, we’ve seen your arguments before oh so many times, and some here would probably rather dismiss you than engage you. If you skip over them to the few good souls (of which I am NOT one) who will engage, you might get what you’re looking for, whatever that is.
Good luck.
Bob, when the CRA passed subprime loans weren’t even legal – they only became so due to the banking deregulation in 1980. Second, CRA enforcement became a lower priority for bank regulators after 2001 who pushed for – and got – a loosening of restrictions in terms of what kinds of loans could be made (See 70 Fed. Reg. 44256). There was much supervision of CRA loans in the Clinton years and studies have shown that subprime loans made during the 1990s fared just as well as prime loans. there is no empirical evidence to support the claim that loans made under the CRA either did significantly worse than ‘prime’ loans or constituted enough of a critical mass to cause the crash. Janet Yellin, the president of the Federal Reserve Bank of San Francisco said:
“Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households.”
And, there’s still no response to the fact that 50% of the subprime loans came from mortgage companies with no CRA involvement at all (not to mention the fact that another 25%-30% came from companies with very little CRA exposure). Finally, the requirement for Fannie and Freddie to purchase derivatives isn’t related to the CRA but came from HUD – an order the Bush administration could have easily overturned had it wanted.
so what burst the bubble?
i believe her like i believe tres. sec. geitner and rep. rangel and rep cold cash rep.jefferson and impeached judge hastings
Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households.”
Uh huh. Why am I skeptical? Oh I know! I’m being lied to.
At any rate I have these two tug boats I need to unload.
newrouter: subprime loans made by banks not subject to the CRA. the point is, if the debt hadn’t been sold, making many people very rich, the bad debt wouldn’t have been integrated into the rest of the financial system and it would have just led to the collapse of the original institutions providing mortgages. In other words, it wasn’t the debt itself; it was the very lucrative selling of the debt that got us where we are today.
Wow. Just wow. That’s some serious ignorance going on there.
Brandon, they’re going to smack you around a little while, and then give up. Have fun everyone!
Brandon,
I’m going to have to ask you for links to your information regarding the performance of sub-prime loans written during the 9-‘s as well as the market share of mortgages written by companies with no CRA involvement; because it is in opposition to anything I’ve ever seen.
Oh, and also about sub-prime loans not being legal until years following the law being written. I’ll have to look up the referencing to relaxing regulation in 2001 that you cited, but I wouldn’t be surprised at regulation being relaxed following the dot-com-bubble collapse that the Bush administration inherited from President Clinton. You know, the recession with the “jobless recovery”, that was in the 6 percentile range, that we heard so much about for years. I for one am happy that the stimulus saved us from a similar fate…
I’ll consider any links you may have, just credible ones please-that aren’t in the tank nor have an agenda; and I’ll put up a few of my own. But I have several meetings and many duties tomorrow and 0-dark-30 comes early.
’cause selling worthless assets was in no way responsible for giving demorats goerlick and holder lots of money
“if the debt hadn’t been sold, making many people very rich, the bad debt wouldn’t have been integrated into the rest of the financial system and it would have just led to the collapse of the original institutions providing mortgages. ”
That’s why Fannie/Freddie collapsed Brandon. And they are the primary eeeeeevvvvoollll institution that were passing around the bad paper. That’s why it was so popular here and abroad-because it had the implicit guarantee of the US government.
Brandon, on the topic of this post, I wonder if you’d be willing to venture how we’ll pay for our unfunded liabilities and what might result in consequence?
Take, for instance, a priceless painting. It represents wealth but how much? We can only know by creating a transaction.
Take the example of Hurley on LOST, who won the lottery and is worth millions of bux. But on the island? Wouldn’t mean a damn thing even if he had it in gold ingots: can’t eat ’em, can’t wear ’em, can’t make a shelter out of ’em.
But you prolly COULD kill someone with them, if you had good aim and a decent arm. Making them exactly as valuable a comparably sized rock.
I’m saying that we arrive at valuations through transactions. That if we took a time out to assess wealth, I wouldn’t trust what an art appraiser said, I’d trust what an auction said.
Aren’t you talking about price now, and not wealth? The price of a painting depends on how much someone is willing to pay for it.
As for worth, that’s subjective. If you’re looking for status, it’s worth a lot. If you need to eat, it’s only worth what food you can exchange it for.
Hmm. Fewer defaults during the dot-com boom. Hard to believe.
I hear the distinction you’re making, di. And it’s a valid one.
I tried to address that point with this line before moving forward with the problems in quantifying aggregate wealth:
Here’s another way to say this: I can’t run math if we’re talking of worth in puppy smiles or survival value. So, I can only speak of the quantity of that worth in an extremely poor way. So I’ll grant all those plentiful and subjective valuations up until the point of a non-coerced transaction where I know that the seller agrees to part with x for y and the buyer reciprocates. Then it can be worth puppy smiles or survival value again.
Second, to blame the 2007 recession on a law passed in 1977 is ridiculous – you need a somewhat better account of the causality.
He did account for it: in 1998, Clinton had Fannie and Freddie loosened their lending standards. The result was predictable: NYT 30 September 1999
Mind you, these phenomenal profits were channeled into government lobbying to ensure that congress didn’t interfere with F&F. Top senate recipients? Dodd, Kerry, Obama, and Bill Bennett (R-UT, soon to be defeated). Barney Frank was literally sleeping with the F&F top brass. There was a tremendous amount of gubmint corruption and collusion involved.
Furthermore, there is no statute of limitations for causality when it comes to laws and their consequences, especially within a short 20 years.
I think it’s ironic in a discussion about entitlements that you’re basically saying that the government should have *protected wall street traders from themselves.*
Not making that argument. I’m making this one:
(A) This is the fourth time in a century that politicians have decided that a nice, non-controversial thing to push for is “home ownership.” The observe that homeowners are more stable, productive citizens, but they fail to realize that owning a home is a result of being stable and productive, not vice-versa.
(B) Wall Street was extremely foolish in its behavior. They were being just as stupid and short-sighted as the politicians. They should NOT have been bailed out; however, Washington created the initial moral hazard.
(C) The derivatives fiasco is just ONE way for Obsessive Housing Disorder to result in a disaster. Go to that link and you’ll see a bulleted outline of the four and soon-to-be five iterations of government interference in the housing market and how they all turned out badly.
(D) I currently work for one of the nation’s largest banks. On their intranet, I saw an archived notice for the call center to instruct them how to respond to charges that the bank was red-lining and engaging in otherwise bad behavior toward the underprivileged. Undoubtedly, these charged had been brought by community agitators who believe that the financial evaluation to qualify as a loan is essentially the same as a poll tax: an arbitrary bar that’s been set high to keep “those people” down.
That changed with the repeal of Glass-Steagal.
Is it possible that multiple factors were involved?
It’s not wise to insist that deregulation only was the problem so that you can reinforce your concept of the free market as an uncontrolled nuclear reaction and government regulations are the control rods.
Government interference in the market is similar to the foolish but well-meaning interventions in Yellowstone that wreaked havoc instead. First they killed the wolves and coyotes to save the precious ungulates; overpopulation and overgrazing devastated the balance in the ecosystem. Then they put out all forest fires to save Bambi and Smokey the Bear; in 1988 the heavy undergrowth that was allowed to build up created an inferno that incinerated trees that could normally withstand periodic grass fires (and even depended on them for survival) but that were defenseless against the brush-fueled fires.
And remember Biosphere II? The self-contained unit that was supposed to contain all the world’s ecosystems so that it could be self-sustaining? Abysmal failure. Turns out you can’t “mandate” nature to do what you want: you can only understand how it works and then let it do its thing.
Furthering the Yellowstone analogy in regard to safety nets:
For a long time, tourons were allowed and even encouraged to interact with the bears, feeding them junk food out of the car windows. The bears were also turned loose on the garbage dumps and tourons got to watch from a “safe” distance.
Needless to say, feeding the bears was bad for both parties: bad for the tourons because they risked having their faces wiped off, and bad for the bears because their diet was literally garbage and being dependent on humans wasn’t what bears were designed to do.
Wisely, the practice of feeding the bears was stopped entirely; we may be less entertained, but the bears are better off.
The park also continued to drop hay during the winter for the ungulates, but they soon realized that they were harming the herds by doing so. That also stopped.
The best thing you can do for Yellowstone — and for the free market — is to let it do its thing, including go through cycles of plenty and want. The weak will die off and the strong will live to reproduce.
Please to peruse * da ta da da dahhhh! * Chris.
Brandon found somewhere else to be. Good call, youngster.
sdferr, your link doesn’t make it to the right one.
#369 is it.
It worked for me just now geoffb. I wonder what’s going on then?
Brandon, here’s an article that explains how the CRA had effects out of proportion to it’s size. Short summary: If you can’t have standards for everybody, soon you will have them for nobody. The CRA encouraged banks to make loans they wouldn’t have made to members of Official Government Victim Groups. However, you can’t actually hand out forms with income questions to people of pallor, and not to the Victims. Sooner or later, someone is going to apply for a loan, get turned down, and say, wait, Jose got a loan for the same amount and didn’t have to document income. Why didn’t I?
The only answer is to ask NO ONE about their income. At which point you’re making loans to deadbeats who won’t pay them back. Or you get out of the loan business altogether.
Late getting back to you. Sometimes on long threads the links don’t seem to get to the correct comment. When I went there it took me to #340.
Why does Stossel thump Chris? What did Chris ever do to him?