OT: 2008 Elections/Politics thread, Part 2

[Jackdog]

Yes it's true, the govt. (not just Congress) borrows money. The president proposes budgets and hammers it out with Congress. Oh and incidentally, the administration just announced today that the fiscal 2009 budget will be about $490 billion in deficit. Not sure if that includes supplemental funding requests for the wars.

Did you count the Hosing Bailout and what it adds to our deficit? I think $8 trillion is a reasonable estimate. That's about 56% of our $14.2 trillion Gross Domestic Product.

The Times reports

the current debt limit is "$9.815 trillion and outstanding federal debt is roughly $9.5 trillion, leaving a cushion of $310 billion." No doubt the White House will argue that we need to borrow more -- roughly twice where we were at the beginning of the decade.

Unforunately the collapse of the housing market in the U.S. has far greater costs. The loss in the value of the housing stock has been estimated so far at $6 trillion -- but that figure could go higher. Then there's the $400 billion that banks have written off so far due to dodgy MBSs on their books -- and that figure is expected to hit $1.6 trillion. Add in the pain from three million foreclosures and the layoffs from people who work in construction and you're creeping up to $8 trillion.

That's a pretty deep hole for the next President to crawl us out of. Poor son of a b*tch.

[JRod]

Thanks Congress!!!! Our tax dollars are now going to pay private bills. 300 Billion worth. Housing bailouts for defaulting borrowers. It just keeps getting better. What's next? Bailouts on credit cards? School loans? The sky's the f***in limit.

American Goverments new philosophy. If you work for it and do it right,your a f***in idiot. If you buy s*** that you know you can't afford and then take out loans on it to buy more s*** you can't afford. Don't worry,our taxes will bail you out.

Thanks to Bush as well. He flip flopped on his veto promise of the moronic bill. I can't wait to see this idiot go. No pardon for Ramos and Compean for doing their job,but he'll sign a bailout for people that don't.

I think it's a lot more complicated than just your usual corporate bailout.

Basically our financial institutions would be worse off if there wasn't this bailout.

I agree with this decision only because I think if that didn't do this now, the economy would fall even farther in decline.

However on the flip side, the lack of SEC and banking regulation to catch this early on is a very serious concern.

[pk500]

However on the flip side, the lack of SEC and banking regulation to catch this early on is a very serious concern.

So the people who borrowed way over their heads aren't culpable? The guy who makes $75,000 per year and buys the $350,000 house is off the hook? The guy who doesn't save a dime, puts everything on plastic and hopes the bills go away is a victim?

It's all the government's fault for lack of regulation?

I'm not doubting that there was very shady lending going on by financial institutions. But I'm sick and f*cking tired of irresponsible BORROWERS being portrayed as victims in this mess.

I would LOVE to know the percentage of American mortgage holders who are on the verge of default or foreclosure. I bet it's less than double digits. Might not even be 5 percent. Yet they are squawking the loudest, looking for a handout, and Uncle Sam is right there to compensate them for their irresponsibility.

Aren't the Republicans supposed to be fiscal conservatives? HA! What a crock.

Take care,
PK

[wco81]

However on the flip side, the lack of SEC and banking regulation to catch this early on is a very serious concern.

So the people who borrowed way over their heads aren't culpable? The guy who makes $75,000 per year and buys the $350,000 house is off the hook? The guy who doesn't save a dime, puts everything on plastic and hopes the bills go away is a victim?

It's all the government's fault for lack of regulation?

I'm not doubting that there was very shady lending going on by financial institutions. But I'm sick and f*cking tired of irresponsible BORROWERS being portrayed as victims in this mess.

I would LOVE to know the percentage of American mortgage holders who are on the verge of default or foreclosure. I bet it's less than double digits. Might not even be 5 percent. Yet they are squawking the loudest, looking for a handout, and Uncle Sam is right there to compensate them for their irresponsibility.

Aren't the Republicans supposed to be fiscal conservatives? HA! What a crock.

Take care,
PK

You can punish them, make them lose their homes for making a bad decision.

But one foreclosure affects the market values of homes for blocks around it.

So people who didn't overextend themselves are going to be hit by foreclosures.

"Irresponsible borrowers" is a matter of opinion. According to this author, the banks tried to push through as many loans as possible. They provided incentives to approve as many loans as possible. Loan brokers actually made more money originating subprime loans with no income documentation than regular loans.

The reason they did this? They believed real estate was going to appreciate 20-40% a year indefinitely so they could securitize loans and trade them. They poured money into the secondary market. In 2006, they spent hundreds of billions financing these loans. In the first quarter of 2008, just $5 billion.

Maybe the "irresponsible borrowers" should have known better. But what about the smart ("productive") bankers who chased these transactions? Should they have known better than to invest in a bubble market?

[JRod]

However on the flip side, the lack of SEC and banking regulation to catch this early on is a very serious concern.

So the people who borrowed way over their heads aren't culpable? The guy who makes $75,000 per year and buys the $350,000 house is off the hook? The guy who doesn't save a dime, puts everything on plastic and hopes the bills go away is a victim?

It's all the government's fault for lack of regulation?

I'm not doubting that there was very shady lending going on by financial institutions. But I'm sick and f*cking tired of irresponsible BORROWERS being portrayed as victims in this mess.

I would LOVE to know the percentage of American mortgage holders who are on the verge of default or foreclosure. I bet it's less than double digits. Might not even be 5 percent. Yet they are squawking the loudest, looking for a handout, and Uncle Sam is right there to compensate them for their irresponsibility.

Aren't the Republicans supposed to be fiscal conservatives? HA! What a crock.

Take care,
PK

Again making assumptions...

I did not say that those who borrowed are off the hook. I simply said this financial turmoil the came out of the sub-prime mortage crisis could have been slowed down if the SEC and regulators caught this before it went critical. The bailout would have been a blip and maybe that would have been more manageable then whole lenders going upside. Maybe even allowing Fannie Mae and Freddie Mac offering new programs for the few who bought a home but can not currently afford. And maybe it wouldn't need any public financing but a new product line of loans to let those people enter into a program they could handle.

Congress and the the Fed Reserve along with the SEC should have been on top of this. I suspect it's a little like steroids in baseball, everyone was gilding the lilly. No one really want to take a hard look at this because of the money that was being pulled in.

I'm not debating who's responsibility this was. I am saying that more oversight was needed to it didn't turn into the huge mess it did.

[pk500]

You can punish them, make them lose their homes for making a bad decision.

A bad decision? That's what knowing you're getting a mortgage that's way over your financial head is called?

A bad decision? I call it gross negligence and irresponsibility.

Again, I will qualify my strident stance by saying that anyone who has suffered unexpected medical expenses or a job loss and extended unemployment never should be put in the same category as the idiots who lived way beyond their means.

I don't give a floating turd how it affects the neighborhood: Someone who lived on credit cards just to have "stuff" and knowingly got a no-income loan that was way over their heads just so they could keep up with the Joneses should not get a bailout.

Maybe the "irresponsible borrowers" should have known better. But what about the smart ("productive") bankers who chased these transactions? Should they have known better than to invest in a bubble market?

Supposed you missed the part where I said there were abuses in the banking industry. Convenient oversight by you, as always.

But as in any transaction, it's caveat emptor. A mortgage is no different.

I don't care if a banker tells me I can get a huge mortgage with no income verification; I'm only getting a mortgage for what my income and budget can support.

As I said: Caveat emptor.

Take care,
PK

[pk500]

Congress and the the Fed Reserve along with the SEC should have been on top of this. I suspect it's a little like steroids in baseball, everyone was gilding the lilly. No one really want to take a hard look at this because of the money that was being pulled in.

Fair enough. I respect that analogy and think it's a fair assessment.

Take care,
PK

[Jackdog]

Again, I will qualify my strident stance by saying that anyone who has suffered unexpected medical expenses or a job loss and extended unemployment never should be put in the same category as the idiots who lived way beyond their means.

I have all the sympathy in the world for hardworking people that fall on hard times. If this bill was just for them,I would be cool with it....sort of.

But as in any transaction, it's caveat emptor. A mortgage is no different.

I don't care if a banker tells me I can get a huge mortgage with no income verification; I'm only getting a mortgage for what my income and budget can support.

As I said: Caveat emptor.

Take care,
PK

Amen.

[Jackdog]

Maybe even allowing Fannie Mae and Freddie Mac offering new programs for the few who bought a home but can not currently afford. And maybe it wouldn't need any public financing but a new product line of loans to let those people enter into a program they could handle.

I like this idea. It seems like a hell of a better option than what went down today.

[wco81]

When homes of responsible homeowners lose value, the costs are going to be a lot more than the value of this bill.

I don't know all the details of the bill but I think real estate flippers are not eligible and those whose mortgages are renegotiated would have to share any appreciation with the FHA.

Right now the biggest threat to the economy and the biggest hurdle to recovery is plummeting home prices. Today the stock markets sold off in part because the IMF or the World Bank issued a report that there's no end in sight to the real estate crisis.

Taxpayers paid for the S&L mess 20 years ago, because the alternative was widespread failure of institutions and loss of confidence in the banking system.

Similarly, if the airline industry implodes, what do you do, just watch while most air traffic in the country evaporates? You can hew to ideology and say, "So be it, they couldn't hack it so let them disappear" or you can be a bit more pragmatic and look at what the economic impact would be.

[pk500]

Similarly, if the airline industry implodes, what do you do, just watch while most air traffic in the country evaporates? You can hew to ideology and say, "So be it, they couldn't hack it so let them disappear" or you can be a bit more pragmatic and look at what the economic impact would be.

If you're referring to the effect of 9/11 on the airlines, that's an exception. That was a disaster that affected the industry, not financial mismanagement.

But if an airline implodes due to mismanagement or the inability to cope with rising fuel prices, tough. Darwin's law. Other airlines that are more efficient will arise to take their place, or existing airlines will fill the void. It's how it works in the private marketplace.

It's bad enough that the Federal government subsidizes Amtrak, which is horribly bloated and mismanaged. If the airline industry gets accustomed to government bailouts, what incentive will it have to run an efficient, lean ship, within the boundaries of FAA safety regulations?

The trucking industry is getting KILLED by higher fuel prices, and it's arguably more important of a cargo carrier for the U.S. economy than the airlines. So should it get a bailout next?

And what about the UAW and U.S. automakers? Should they be bailed out after the banking industry, airlines and trucking industries? Where does this borderline market socialism creep to next?

Take care,
PK

[wco81]

I was referring more to the current situation. Civilian aviation just might not be viable with oil at $150, especially when oil almost doubles in price in less than a year.

Who's able to anticipate and hedge against that kind of a jump in your costs?

Maybe we should return to when air travel really used to be a luxury affordable only to a small portion of the population. Not sure what the economic impact would be. Obviously a lot of tourism would disappear and business which depend on national or international markets may have to drastically contract.

I don't know all the story with Amtrack but passenger rail travel in this country is only viable in a handful of very profitable markets (the NY-Washington route for instance). Of course, if airlines go under, maybe it becomes more viable. Ridership is supposedly up because of higher gas prices.

Another target of big govt. critics is the USPS. Certainly UPS and Fed Ex are well-run businesses. But can these companies deliver everywhere and at affordable prices?

Govt. can't be the backstop to every business but there are no easy answers.

This housing bailout bill may be an overreaction to a previously laissez-faire stance by govt. (or in some cases, an accommodationist stance). There are likely to be unintended consequences. Yet what is going to be the greater mistake, doing nothing while real estate continues to implode or attempting to staunch the bleeding?

It could be argued that leaving things to the markets is what has led us to this mess.

[pk500]

Maybe we should return to when air travel really used to be a luxury affordable only to a small portion of the population. Not sure what the economic impact would be. Obviously a lot of tourism would disappear and business which depend on national or international markets may have to drastically contract.

Or better yet, turn over short-haul flights completely to regional carriers and let the big boys concentrate on longer and international routes. Nah -- that wouldn't work: It's a private industry solution.

Govt. can't be the backstop to every business but there are no easy answers.

I agree with that. But the bailouts must stop somewhere.

This housing bailout bill may be an overreaction to a previously laissez-faire stance by govt. (or in some cases, an accommodationist stance). There are likely to be unintended consequences. Yet what is going to be the greater mistake, doing nothing while real estate continues to implode or attempting to staunch the bleeding?

The depreciation of real estate values is a necessary correction. Real estate was ridiculously overvalued; a correction was due to occur. What has complicated this correction is that it has been piggybacked to a mortgage crisis.

You also have the perspective of someone who lives in California, where real estate values arguably were as overheated, overbloated and overcooked as anywhere in the nation. Real estate values are taking a hit everywhere in America, but arguably nowhere worse than California.

It could be argued that leaving things to the markets is what has led us to this mess.

I agree with the analysis of JRod that the government turned a blind eye to this for too long. But you can't legislate personal responsibility, either.

Take care,
PK

[wco81]

Several regional carriers have failed this year.

DL and NW, when they merge, intend to eliminate a lot of capacity and concentrate on more lucrative international flights.

Some industry observers have said that we can only support a couple of national carriers, not the 5 or 6 we have now.


On the housing bailout bill, I searched and it appears both McCain and Obama support this bill. The dissenters in Congress raise concerns about cost and govt. intrusion into the free market:

"[U.S. Rep] Boehner's concern is a valid one. The housing bailout could become an even larger housing-related outlay than the housing bailout in the late 1980s with the Resolution Trust Corporation," Langan said, adding that the bill "could add more than $500 billion in federal spending in less than five years."

Nevertheless, the alternative, in Langan's interpretation, is far worse. Closing Fannie or Freddie, or preventing them from buying mortgages is not an option, he said. Further, a failure by Fannie or Freddie would be interpreted by institutional investors as a failure by the United States Government to back its debt, he said. "This would send a shock wave through the credit and bond markets. The dollar would plunge. The [U.S.] stock market would sustain its worst losses in decades, as would international markets," Langan said. "These events would produce the worst [U.S.] economic recession since the early 1980s, perhaps since the 1930s."

Langan added that, due to widespread borrower and lender errors during the housing boom, the U.S. Government and, by extension, the U.S. taxpayer, is now left with remedies that are "a) not very good and certainly very costly, b) horrible, or c) catastrophic."

"It's a mess, and the cleanup will be costly for taxpayers. But one thing we can not do is sit here and watch the housing slump jeopardize the productive and functioning sectors of the U.S. economy," Langan said. "So in that sense the Fannie/Freddie bailout, by averting a major economic tragedy, marks the beginning of the end of the housing slump."

[/b][/quote]

[pk500]

That's one economist's theory, not gospel. Interesting opinion, though.

Take care,
PK

[FatPitcher]

Anytime the government mitigates the risks people take, such as in this bailout, it encourages more people to behave in a risky manner in the future.

It also turns stupidity into an asset and prudence into a liability. Plan wisely, and you pay for the mistakes of the stupid. Be stupid, and the pain that you deserve is spread among lots of people.

One of the problems with a free market system is that it only works if people act in their own self-interest. If they are too stupid or irresponsible to do that, stuff like this happens.

[matthewk]

I feel like I've got a giant sign pasted to my forehead that says "SUCKER" every time I read about another one of these bailouts. We should have built a $500,000 5,000sq ft. home using an adjustable rate mortgage instead of a $220,000 2,100sq. ft home on a 30 year fixed rate. I think I would have made out better with this bailout.

Every member of congres, the senate, and the president's cadre should be forced to take an economics 101 class. How the f&*k do they think they are going to pay for Bear Stearns, Fannie & Freddie, Stimulus checks, housing, etc...? We are already billions in debt and they keep finding new ways to throw even more money at things. All of these "fixes" are just going to make things uglier on us in the future. At some point our debts will need to be paid, and I fear for the day when our lenders come to collect.

[matthewk]

Are these the type of people we're "helping out" with the housing bailout?:

http://news.yahoo.com/s/ap/20080728/ap_ ... oreclosure

I love how the article refers to them as "victims" of the forclosure crisis. They get a $450,000 home for free, PLUS $250,000 in contributions and they are victims?

[Jackdog]

Are these the type of people we're "helping out" with the housing bailout?:

http://news.yahoo.com/s/ap/20080728/ap_ ... oreclosure

I love how the article refers to them as "victims" of the forclosure crisis. They get a $450,000 home for free, PLUS $250,000 in contributions and they are victims?

It's why I think my head is going to explode. Our kids and their kids are in deep sh!t.

[wco81]

Anytime the government mitigates the risks people take, such as in this bailout, it encourages more people to behave in a risky manner in the future.

The debt ratios for many banks had risen to 32 to 1. Long before this bill or the Bear Stearns deal.

It was easy money, Greenspan worrying about deflation in the early part of the decade.

[dougb]

Anytime the government mitigates the risks people take, such as in this bailout, it encourages more people to behave in a risky manner in the future.

It also turns stupidity into an asset and prudence into a liability. Plan wisely, and you pay for the mistakes of the stupid. Be stupid, and the pain that you deserve is spread among lots of people.

One of the problems with a free market system is that it only works if people act in their own self-interest. If they are too stupid or irresponsible to do that, stuff like this happens.

Moral hazard. Problem is that the stupid people (borrowers, lenders) end up taking the financial system to the edge of the cliff. If government doesn't intervene and start handing out money the financial system may head over the cliff as bank runs and bank failures spread.

But you're right when you point out that rescuing those people and businesses means no one has to own up to the problems they created.

Not sure which is the lesser of the two evils here

Best wishes,

Doug

[JRod]

I'm not going to advocate for a bigger government footprint in our lives but I would like to see a proactive government.

The lending practices, the toys with lead, the spinach/tomato ecoli, FDA approval for certain drugs are just a few of the things that slip through regulation. If these agencies are spread too thin then that an issue that needs to be addressed. In each case, I don't know who the real culprit was or is.

These issues always seem to reach critical mass because of the incompetence early on that never seems to correct the issue. The banking community offered bad loans. The consumer took advantage of them. The regulating agencies worried about something else. The Fed Reserve was worried about planning Greenspan's retirement. There is always red flags and it takes a series of errors for these things to reach critical mass.

If the SEC got involved early, people would have cried that the government has too large of a footprint in banking regulation.

[FatPitcher]

I'm not going to advocate for a bigger government footprint in our lives but I would like to see a proactive government.

The lending practices, the toys with lead, the spinach/tomato ecoli, FDA approval for certain drugs are just a few of the things that slip through regulation. If these agencies are spread too thin then that an issue that needs to be addressed. In each case, I don't know who the real culprit was or is.

These issues always seem to reach critical mass because of the incompetence early on that never seems to correct the issue. The banking community offered bad loans. The consumer took advantage of them. The regulating agencies worried about something else. The Fed Reserve was worried about planning Greenspan's retirement. There is always red flags and it takes a series of errors for these things to reach critical mass.

If the SEC got involved early, people would have cried that the government has too large of a footprint in banking regulation.

I'm of the opinion that if the government chooses to get involved, it should do whatever it's doing well. If it decides to provide education, it should provide quality schools. If it decides to provide pensions for retirees, it should design a system that will stay solvent and deliver the promised benefits while maintaining the promised taxation level. If it decides to charter a lending service, it should back that service completely. Obviously, I generally prefer that the government not get involved, but if it does, it should do things right instead of half-assed. Unfortunately, most of the services the government delivers are subpar given the resources expended.

Market screw-ups aren't necessarily a reason for increased government intervention. Sometimes expensive lessons are necessary for posterity.

[Feanor]

Is a lesson really a lesson if nobody actually learns anything?

[FatPitcher]

Is a lesson really a lesson if nobody actually learns anything?

Well, let's test that.

Why did the meltdown happen? Because the market realized that companies had severely overvalued risky debt.

Was my post a lesson? My guess is no.