[Rhodes22-list] Brad, Economics/Politics - Significant Post about economic and politicalmess

[Michael D. Weisner]

Brad,

Thanks for the story.  It was well written and very interesting.  Haslett on 
Hassett.

If you are interested in viewing the original S.190 bill, you may find it 
at:
http://www.govtrack.us/congress/bill.xpd?bill=s109-190

Sponsor:
Sen. Charles Hagel [R-NE]

Cosponsors [as of 2007-01-08]
Sen. Elizabeth Dole [R-NC]
Sen. John McCain [R-AZ]
Sen. John Sununu [R-NH]

If you're a purist and do not want the commentary and analysis, you may find 
the text at the LoC:
http://thomas.loc.gov/cgi-bin/query/C?c109:./temp/~c109wHZu09

Mike
s/v Shanghaid'd Summer ('81)
       Nissequogue River, NY

From: "Brad Haslett" <flybrad at gmail.com>Sent: Monday, September 22, 2008 
9:09 AM
> Ed,
>
> Thanks, I still don't have a good grip on all these debt swap and
> derivative contracts but then neither did Warren Buffet. Anyway you
> slice it, Fannie and Freddie were what brought this house of cards
> down (see attached).
>
> Brad
>
> -----------------------------
>
>
>
> Commentary by Kevin Hassett
> More Photos/Details
>
> Sept. 22 (Bloomberg) -- The financial crisis of the past year has
> provided a number of surprising twists and turns, and from Bear
> Stearns Cos. to American International Group Inc., ambiguity has been
> a big part of the story.
>
> Why did Bear Stearns fail, and how does that relate to AIG? It all
> seems so complex.
>
> But really, it isn't. Enough cards on this table have been turned over
> that the story is now clear. The economic history books will describe
> this episode in simple and understandable terms: Fannie Mae and
> Freddie Mac exploded, and many bystanders were injured in the blast,
> some fatally.
>
> Fannie and Freddie did this by becoming a key enabler of the mortgage
> crisis. They fueled Wall Street's efforts to securitize subprime loans
> by becoming the primary customer of all AAA-rated subprime-mortgage
> pools. In addition, they held an enormous portfolio of mortgages
> themselves.
>
> In the times that Fannie and Freddie couldn't make the market, they
> became the market. Over the years, it added up to an enormous
> obligation. As of last June, Fannie alone owned or guaranteed more
> than $388 billion in high-risk mortgage investments. Their large
> presence created an environment within which even mortgage-backed
> securities assembled by others could find a ready home.
>
> The problem was that the trillions of dollars in play were only
> low-risk investments if real estate prices continued to rise. Once
> they began to fall, the entire house of cards came down with them.
>
> Turning Point
>
> Take away Fannie and Freddie, or regulate them more wisely, and it's
> hard to imagine how these highly liquid markets would ever have
> emerged. This whole mess would never have happened.
>
> It is easy to identify the historical turning point that marked the
> beginning of the end.
>
> Back in 2005, Fannie and Freddie were, after years of dominating
> Washington, on the ropes. They were enmeshed in accounting scandals
> that led to turnover at the top. At one telling moment in late 2004,
> captured in an article by my American Enterprise Institute colleague
> Peter Wallison, the Securities and Exchange Comiission's chief
> accountant told disgraced Fannie Mae chief Franklin Raines that
> Fannie's position on the relevant accounting issue was not even ``on
> the page'' of allowable interpretations.
>
> Then legislative momentum emerged for an attempt to create a
> ``world-class regulator'' that would oversee the pair more like banks,
> imposing strict requirements on their ability to take excessive risks.
> Politicians who previously had associated themselves proudly with the
> two accounting miscreants were less eager to be associated with them.
> The time was ripe.
>
> Greenspan's Warning
>
> The clear gravity of the situation pushed the legislation forward.
> Some might say the current mess couldn't be foreseen, yet in 2005 Alan
> Greenspan told Congress how urgent it was for it to act in the
> clearest possible terms: If Fannie and Freddie ``continue to grow,
> continue to have the low capital that they have, continue to engage in
> the dynamic hedging of their portfolios, which they need to do for
> interest rate risk aversion, they potentially create ever-growing
> potential systemic risk down the road,'' he said. ``We are placing the
> total financial system of the future at a substantial risk.''
>
> What happened next was extraordinary. For the first time in history, a
> serious Fannie and Freddie reform bill was passed by the Senate
> Banking Committee. The bill gave a regulator power to crack down, and
> would have required the companies to eliminate their investments in
> risky assets.
>
> Different World
>
> If that bill had become law, then the world today would be different.
> In 2005, 2006 and 2007, a blizzard of terrible mortgage paper
> fluttered out of the Fannie and Freddie clouds, burying many of our
> oldest and most venerable institutions. Without their checkbooks
> keeping the market liquid and buying up excess supply, the market
> would likely have not existed.
>
> But the bill didn't become law, for a simple reason: Democrats opposed
> it on a party-line vote in the committee, signaling that this would be
> a partisan issue. Republicans, tied in knots by the tight Democratic
> opposition, couldn't even get the Senate to vote on the matter.
>
> That such a reckless political stand could have been taken by the
> Democrats was obscene even then. Wallison wrote at the time: ``It is a
> classic case of socializing the risk while privatizing the profit. The
> Democrats and the few Republicans who oppose portfolio limitations
> could not possibly do so if their constituents understood what they
> were doing.''
>
> Mounds of Materials
>
> Now that the collapse has occurred, the roadblock built by Senate
> Democrats in 2005 is unforgivable. Many who opposed the bill
> doubtlessly did so for honorable reasons. Fannie and Freddie provided
> mounds of materials defending their practices. Perhaps some found
> their propaganda convincing.
>
> But we now know that many of the senators who protected Fannie and
> Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd,
> have received mind-boggling levels of financial support from them over
> the years.
>
> Throughout his political career, Obama has gotten more than $125,000
> in campaign contributions from employees and political action
> committees of Fannie Mae and Freddie Mac, second only to Dodd, the
> Senate Banking Committee chairman, who received more than $165,000.
>
> Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and
> employee contributions, has received more than $75,000 from the two
> enterprises and their employees. The private profit found its way back
> to the senators who killed the fix.
>
> There has been a lot of talk about who is to blame for this crisis. A
> look back at the story of 2005 makes the answer pretty clear.
>
> Oh, and there is one little footnote to the story that's worth keeping
> in mind while Democrats point fingers between now and Nov. 4: Senator
> John McCain was one of the three cosponsors of S.190, the bill that
> would have averted this mess.
>
> (Kevin Hassett, director of economic-policy studies at the American
> Enterprise Institute, is a Bloomberg News columnist.
>
>
> Last Updated: September 22, 2008 00:04 EDT
>
>
>
> On Sun, Sep 21, 2008 at 6:53 PM, Tootle <ekroposki at charter.net> wrote:
>>
>> Brad,
>>
>> Have you seen this site?
>>
>> http://www.occ.treas.gov/ftp/deriv/dq403.pdf
>>
>> Ed K
>> Greenville, SC, USA
>> http://www.nabble.com/file/p19599807/stock%2Btip.gif stock+tip.gif
>>
>>
>>
>> Ed, Brad,
>>
>> First, thanks Brad for taking the time to post all this stuff.
>>
>> Next, Ed, while I agree with most of what you have said I gotta' take
>> this with a grain of salt
>>
>>> and 2.
>>> the people who were reporters, editors or commentators did not have
>>> appropirate education to understand what they reported or chose not 
>>> report
>>> the issues. [This goes back to my comments to Captain Rummy]
>> Appropriate education is way over-rated. I have none to speak of and I
>> have been watching incredulously as this whole thing unfolded. I think
>> all this proves is that some of the most prestigious colleges in the
>> country graduate some of the least sensible people. It doesn't take a
>> rocket scientist to figure out that you can't loan money to people who
>> aren't going to pay it back and remain in business for long. You can't
>> continually make risky loans and expect to be able to pass the risk on
>> to some greater fool forever. Eventually even the dimmest bulb is going
>> to figure out he's being taken for a ride.
>>
>> So, lets not try to claim that more education would have helped these
>> fools. What was and is obvious to a high school graduate should have
>> been child's play for someone with "higher education" yet, they show us
>> a complete lack of common sense. It seems you can't get good sense
>> through education.
>>
>> Rik
>>
>> Ayn Rand was a prophet - - it isn't my fault
>>
>>
>>
>> Tootle wrote:
>>> Brad,
>>>
>>> 1.  Thank you for your posts on this subject.  There are those who 
>>> quibble
>>> that this series of posts is not sailing related.  Well it is.  Because 
>>> it
>>> concerns our freedom to sail, buy a boat, keep a small sail boat maker 
>>> in
>>> business.  It is important to understand the basics of business, 
>>> economics
>>> and ethics.
>>>
>>> 2.  Warren Buffet was not the only one who understood the problems with
>>> the
>>> mortagages, loans and financial instuments involved.  The important 
>>> thing
>>> to
>>> comprehend is 'The holy media' did not understand.  Why?  Two important
>>> reasons:  1.  It flies in the face of liberalism and their advocacy, and
>>> 2.
>>> the people who were reporters, editors or commentators did not have
>>> appropirate education to understand what they reported or chose not 
>>> report
>>> the issues. [This goes back to my comments to Captain Rummy]
>>>
>>> I am sure the lady accountant who broke the Enron scandal understands 
>>> what
>>> the financial and accounting issues are.
>>>
>>> I am sure that those who support 'Progressivism' do not care to 
>>> understand
>>> the real results of their advocacy.  Thank you for pointing out Obama's
>>> financial advisors use of the problem causing techniques.
>>>
>>> Again, thank you for the information.
>>>
>>> Ed K
>>> Greenville, SC, USA
>>> Addenda:
>>>
>>> 1.  "Character isn't something you were born with and can't change, like
>>> your fingerprints. It's something you weren't born with and must take
>>> responsibility for forming."  Jim Rohn
>>>
>>> 2.  "Leaders are made, they are not born. They are made by hard effort,
>>> which is the price which all of us must pay to achieve any goal that is
>>> worthwhile."  Vince Lombardi
>>>
>>> 3.  "Most of the poverty and misery in the world is due to bad 
>>> government,
>>> lack of democracy, weak states, internal strife, and so on."  George 
>>> Soros
>>>
>>>
>>> Brad Haslett-2 wrote:
>>>
>>>> Ed,
>>>>
>>>> It will take years to unravel this whole puzzle and no doubt a lot of
>>>> money will be made writing books about it, but here's what we know for
>>>> now.  The economy was about to grind to a stop like an engine running
>>>> without oil, ie, financial institutions were about to stop lending
>>>> money because no one trusted anyone.  The root cause was a lot of
>>>> really nasty mortgages made with horrendous lending practices. Add in
>>>> some new debt instruments that no one really understood (Mr. Buffet
>>>> excepted) and the problems accelerated. The "fix", if you want to call
>>>> it that, is for the federal government to allow financial institutions
>>>> to dump their toxic assets, clean up their books, and go back to "mark
>>>> to market" accounting with assets of determinable value.  What this
>>>> will cost the government is unknown because the value of the assets to
>>>> be dumped is unknown.  Just like the RFC during the Great Depression
>>>> and the Resolution Trust in the late 80's, some of these assets do
>>>> have value and the taxpayer will get some of their money back.  One of
>>>> ideas being floated now is a reverse auction where institution bids
>>>> down to a price that they are willing to sell the government the bad
>>>> assets. This is truly new territory. Lehman Brothers had a chance to
>>>> be acquired by Bank of Korea and CITIC bank of China months ago but
>>>> thought they could get a better price.  Now they'll settle for pennies
>>>> on the dollar.
>>>>
>>>> Ever heard of a NINJA loan?  Neither had I until a couple of years ago
>>>> and it didn't make sense then and it sure as hell doesn't now.  NINJA
>>>> - no income, no job or assets.  Who in their right mind would make
>>>> such a loan?  No one, unless they thought they could palm the risk off
>>>> on someone else.  Fanny and Freddie are the biggest culprits in this
>>>> mess.  Now here's where it gets interesting. They and most banks
>>>> operated using sound lending practices until the late 70's when the
>>>> Community Reinvestment Act was passed by Carter. (I'm going to use a
>>>> "cheap and easy" citation here instead of financial news articles to
>>>> save time)
>>>>
>>>> http://en.wikipedia.org/wiki/Community_Reinvestment_Act
>>>>
>>>> Clinton strengthened the act in 1995 and shoved more bad lending
>>>> practices down bankers throats. One of the "leaders" in subprime
>>>> mortgages was Superior Bank in Chicago.
>>>>
>>>> http://query.nytimes.com/gst/fullpage.html?res=9C05E4D71E3CF934A3575BC0A9679C8B63&sec=&spon=&pagewanted=1
>>>>
>>>> Superior went belly-up in 2001.  Who ran Superior?  Penny Pritzker, B
>>>> Hussein Obama's finance 2008 finance chairman, financial sponsor, and
>>>> also chairman of the successor to the Chicago Annenberg Challenge. The
>>>> point is, the demo model for subprimes was Superior and it failed.
>>>> Pritzker was to the sub prime mortgage what Michal Malkin was to junk
>>>> bonds.
>>>>
>>>> In 2003 the Bush administration tried to reform Freddie and Fannie and
>>>> was shot down, led by Barny Frank.
>>>>
>>>> http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63
>>>>
>>>> Some Senators saw the handwriting on the wall in 2005 and again tried
>>>> to reform Fan & Fred.
>>>>
>>>> http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190#sMonofilemx003Ammx002Fmmx002Fmmx002Fmhomemx002Fmgovtrackmx002Fmdatamx002Fmusmx002Fm109mx002Fmcrmx002Fms20060525-16.xmlElementm0m0m0m
>>>>
>>>> By 2007, the problems were too big too ignore because so many
>>>> homeowners were defaulting.  The financial markets stayed intact
>>>> because these "toxic mortgages" were hidden behind some really clever
>>>> debt instruments.  Then everyone got scared.
>>>>
>>>> I'll post more as information trickles in.  Both political parties
>>>> have their fingerprints all over this mess and Wall Street threw some
>>>> good old fashioned GREED into mix for the final meltdown.  Follow the
>>>> money-
>>>>
>>>> http://www.opensecrets.org/industries/mems.php
>>>>
>>>> What interesting times we live in!
>>>>
>>>> Brad
>>>>
>>>>
>>>>
>>>> On Sun, Sep 21, 2008 at 6:16 AM, Tootle <ekroposki at charter.net> wrote:
>>>>
>>>>> Brad,
>>>>>
>>>>> You are the accountant on this forum.  If there are others, they do 
>>>>> not
>>>>> have
>>>>> courage so speak up.
>>>>>
>>>>> This is also an ethical question, a legal ethical question.  And 
>>>>> lawyers
>>>>> should be speaking up.  But alas, they claim Marxism is good.  Or they
>>>>> say
>>>>> their practice is limited to real estate transactions or business
>>>>> matters.
>>>>> What the hell caused this mess?
>>>>>
>>>>> In South Carolina when the state legislature is not in session, lawyer
>>>>> represenatives represent clients before judges they elect.  Right and
>>>>> Wrong,
>>>>> good and evil, when working in a gray areas, it is important that
>>>>> actions
>>>>> withstand the scrutiny of sunlight.
>>>>>
>>>>> Brad said, "Here's something you don't hear much about - I've read
>>>>> exactly
>>>>> two articles that discussed "mark to market" including one from Steve
>>>>> Forbes.  He didn't name it but he's referring to FASB 157 (Financial
>>>>> Accounting Standards Board) which went into effect November 15, 2008
>>>>> that
>>>>> requires all assets including level 3 assets which include
>>>>> collateralized
>>>>> debt obligations (what Warren Buffet described as "weapons of mass
>>>>> financial
>>>>> destruction" in 2002) to be shown on the books at market value.  There
>>>>> lies
>>>>> the problem, no one knows what these obligations are "worth" and when
>>>>> faith
>>>>> in these instruments failed, the system started grinding to a halt.
>>>>>
>>>>> If the people had been honest and ethical from the get go they would
>>>>> have
>>>>> held the actions and the paper they were written on to sunlight and a
>>>>> simple
>>>>> test of right and wrong.  These events remind me of the lady who 
>>>>> spilled
>>>>> the
>>>>> beans in the Enron situation.  And the media said Enron was big?
>>>>>
>>>>> As you find time tell us where to find Steve's article and Warrens
>>>>> admonition.  And post any relevant sources.
>>>>>
>>>>> Yes, Marxism is at issue because of the Federal requirement of banks 
>>>>> to
>>>>> loan
>>>>> in questionable situations instead of holding federally backed loans 
>>>>> to
>>>>> a
>>>>> high standard.  The government compelled bankers to disregard risks.
>>>>> Dictatorship, Marxism, Socialism, Progressivism, call it what you 
>>>>> want,
>>>>> it
>>>>> is wrong and leads to garbage.
>>>>>
>>>>> Ed K
>>>>> Greenville, SC, USA
>>>>> attachment:
>>>>> http://www.nabble.com/file/p19593492/401k.jpg 401k.jpg
>>>>>
>>>>>
>>>>> Ed,
>>>>> The subject line should probably be edited to include 'Politics' since
>>>>> that is always an aspect of economics, but let's stick primarily to
>>>>> economics for now.
>>>>>
>>>>> First, a quick personal note.  My union called me this week - the wife
>>>>> of one of our members is dying from cancer and he has burned through
>>>>> his sick leave to be by her side.  They asked me to cover one of his
>>>>> trips last night, which I did.  I contacted my superior in the
>>>>> training department and asked that he get the word out to fellow
>>>>> instructors to consider flying "back-side-of-the-clock" trips for
>>>>> landing currency instead of the usual afternoon "gentlemen" trips, and
>>>>> they have stepped-up to the plate.  This is a great country, and I am
>>>>> fortunate to work for a wonderful company and with a very professional
>>>>> union.
>>>>>
>>>>> Now about this little "financial problem" we face, it is bad. Just as
>>>>> in every major airline crash that leaves a smoking hole in the ground,
>>>>> the press immediately jumps to conclusions, focuses on the horror, and
>>>>> is usually wrong in their analysis. What we are witnessing here is not
>>>>> a crash (despite the MSM comparisons to 1929) but more like a GPWS
>>>>> (ground proximity warning system) encounter - if immediate action
>>>>> isn't taken, disaster will be the result. Like every aircraft
>>>>> accident, the usual suspects start their spin, "It was the pilots
>>>>> fault", "It was Boeings fault", "It was the company's fault", "It was
>>>>> the weather".  The reality takes years to discover and the root causes
>>>>> are often something completely different than the original pundits
>>>>> analysis. And most importantly, there is usually plenty of blame and
>>>>> responsibility to go around.
>>>>>
>>>>> Here's the quick and dirty on what we know.  The financial markets
>>>>> were about to shut down because the trust and faith in the underlying
>>>>> assets that props-up the entire system were suspect.
>>>>>
>>>>> I'll go into a more thorough analysis tomorrow after a good nights
>>>>> sleep.  Here's something you don't hear much about - I've read exactly
>>>>> two articles that discussed "mark to market" including one from Steve
>>>>> Forbes.  He didn't name it but he's referring to FASB 157 (Financial
>>>>> Accounting Standards Board) which went into effect November 15, 2008
>>>>> that requires all assets including level 3 assets which include
>>>>> collateralized debt obligations (what Warren Buffet described as
>>>>> "weapons of mass financial destruction" in 2002) to be shown on the
>>>>> books at market value.  There lies the problem, no one knows what
>>>>> these obligations are "worth" and when faith in these instruments
>>>>> failed, the system started grinding to a halt.
>>>>>
>>>>> I'm not very happy about the federal government nationalizing roughly
>>>>> 7% of the economy but let's hope this only a temporary jolt of
>>>>> medicine and the government will divest themselves of their new
>>>>> "ownership" position as quickly as they acquired it.
>>>>>
>>>>> We'll discuss the culprits tomorrow.
>>>>>
>>>>> Brad
>>>>>
>>>>> On Fri, Sep 19, 2008 at 6:26 PM, Tootle <ekroposki at charter.net> wrote:
>>>>>
>>>>>> Brad just posted a significant post to the list, but its significance
>>>>>> gets
>>>>>> lost in subject line.  All shoud read his last post:
>>>>>>
>>>>>> http://www.rhodes22.org/pipermail/rhodes22-list/2008-September/054616.html
>>>>>>
>>>>>> I am referring to the briefing to Congress.
>>>>>>
>>>>>> Ed K
>>>>>> Greenville, SC, USA
>>
>> http://www.nabble.com/file/p19599807/stock%2Btip.gif stock+tip.gif
>> --
>> View this message in context: 
>> http://www.nabble.com/Economics---Significant-Post-to-List-with-wrong-subject-line%21%21%21-tp19590875p19599807.html
>> Sent from the Rhodes 22 mailing list archive at Nabble.com.
>>
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