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Author Topic: The economic crisis and the media's failure to investigate
jedivan
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Once again, OSC hits the nail on the head. However, he did forget the contributution of one individual: Senator Phil Gramm. This Republican sponsered a bill that allowed insurance companies to begin investing in commodities themselves. (They had been prohibited from doing so after the Great Depression.) The vast majority of both the Senate and Congress - including Senators McCain and Biden - ended up voting in favor of this bill. I think the economic crisis occurred because of both this prohibition being lifted and the rise of risky home loans. Neither political party is completely blameless here. But Senator McCain should get credit for pointing out potential problems with these laws, particularly with Fannie Mae's and Freddie Mack's lack of governmental oversight. He began pointing out potential problems almost four years ago, but no one seemed to be listening.
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Jesse
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Except that, you know, 85% of sub-primes had nothing to do with F&F, and 60% of sub-primes went to people completely qualified for traditional loans who were steared into sub-primes by unscrupulous loan agents.

It was the SEC that magnified the problem three to four fold by allowing broker/trader/banks to leverage out up to 40 to one on this bad paper, instead of 12 to one, as has been the rule ever since the SEC was created.

Card would rather rant about so-called Honor than do any research beyond watching Fox a couple hours a day.

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DonaldD
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Let's not forget that a mortgage is a loan against the value of a physical item - a house and its associated land. Yes, if houses devalue, there will be a loss, but the value of the loss is nowhere near the value of the initial loan.

OSC has unfortunately fallen for the oversimplification.

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Viking_Longship
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It would have been more effective if he had made his point about the misappropriation of blame without getting on his self-righteous kick about the MSM media cherry picking and twisting facts when he does it so blatently himself so often.
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crmarvin42
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@ Viking_Longship

However, it's important to note that OSC doesn't claim to be non-biased, or to present both sides of the issue "Fairly." He is a private citizen that gives his opinion and makes sure everyone who reads his word know this. The media on the other hand likes to portray itself as infialliably fair and even handed. I'm not a tinfoil hat type that believes the bias to be intentional, or a conspiracy, but that doesn't mean I don't think it's real.

Outside of my political intersts I'm an avid user of Apple computers and devices. I know that my view of the PC industry is different from the mainstream and that I tend to give Apple the benefit of the doubt when I see news articles about them. However, I disclose this to people that ask for my advice when considering a computer purchase or troubleshooting their network configuration, and allow them to decide how large of a grain of salt to use when thinking about my advice.

The only media outlets that I've come across that does the equivalent is the conservative newspaper at UMass Amherst (it says Conservative on the top) and Conservative talk radio. Vocal conservatives admit to being conservative so readers can use their own filters, Liberal media does not provide the same warning.

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Wayward Son
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Welcome to Ornery, crmarvin. You are wrong. (Standard greeting. [Smile] )

Liberal media does provide the same warning. Anyone listening to Air America or MSNBC pretty well knows they are listening to the Liberal media.

Now, if you are including the rest of the MSM, that is probably because the Conservative Media considers everything to the left of it as Liberal. Thus, ABC, NBC, CBS and public TV and radio are all "Liberal."

But if you listen to Randi Rhodes, Keith Olbermann or Rachel Maddow, and then compare them to Charles Gibson, Katie Corric, or even McLaughlin, you'll notice that the MSM does tend to report stories without the judgemental "buzz words." (They may occasionally identify certain organizations as conservative, but often that is because those organizations self-identify themselves as "conservative.") There is a more neutral tone to both sides from the MSM than from the aforementioned liberal pundits.

Of course, stories from any source should be verified in this day and age. But it's good to hear the facts sometimes without someone declaring either conservatives to liberals to be the bad guys. Sometimes, like with the current fiscal crisis, both sides have to take some of the blame.

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Jesse
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The biggest difference between Olbermann and O'Reilly is that neither "Fair and Balanced" or any such similar phrase is scrolling below Olbermanns giant head.

[ October 21, 2008, 08:25 AM: Message edited by: Jesse ]

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kenmeer livermaile
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Also, Olbermann tends to a) make sense b) with mostly accurate data and c) without behaving like a giant baby flinging poo.
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Jesse
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No, he's a snarky smart guy flinging poo.

I'd much rather have a cup of coffee with Olbermann, but he still flings poo.

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Rickoxo
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"60% of sub-primes went to people completely qualified for traditional loans who were steared into sub-primes by unscrupulous loan agents." - from Jesse, 10/18

I guess I wonder how this happens. I'm qualified for a loan, I have enough financial skill to be able to purchase a house, so how do I "get steered?" What are you thinking these loan brokers did to people?

Think of the number of people you're talking about and try to come up with a reasonable story that can explain 60% of tens of thousands of mortgage buyers "getting steered?"

There's no way you can begin to make an argument like that without having to reference and give the majority of the credit to mortgage buyers who decided to go for the cheapest option even though it was risky.

If the people truly are qualified then they have the freedom to shop around, find the best deal and they made their choice completely intentionally. There are hundreds of mortgage companies available, banks in every neighborhood, the internet, newspapers, amazing resources to help make a good decision. If you want to describe these people as qualified, then they have these resources available to them and your argument of getting steered sound improbable.

If they weren't qualified, needed special help and there was only one place and the only option was a risky loan, then it kills your argument that 60% were qualified buyers. You can't have it both ways.

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Rickoxo
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The piece that OSC's article brings up for me that is pretty critical is that Obama, Pelosi, Reed and the DNP are intentionally misleading people about the origins of the mortgage crisis - basically lying. They are intentionally misrepresenting themselves and history for their personal and political gain. Even Saturday Night Live made a joke about it a few weeks ago.

Imagine for a second that one of Obama's kids made some huge mess in their house, the other child had some part in it as well, but the one kid got it started and kept it going. When the parents come home, that same kid blames it all on her sister? How would you imagine Obama would parent that child if he knew the truth? Can you imagine any response from Obama to his messy daughter that coincides at all with how Obama is dealing with the mortgage crisis?

No matter what other good characteristics he has, this tells me (even before OSC wrote this article) that Obama is completely politics as usual, exactly more of the same and that the only change he's interested in is who gets to lie and steal for money and power.

I'm not a Republican who's mad, my take on the republican party is that they have done the exact same kind of thing. I'm mostly annoyed that people seem to actually be buying that Obama is somehow different from other politicians.

Time and time again in this election he has shown his willingness to say whatever he needs to say in front of one group and they say something different in front of another group. Unfortunately McCain hasn't called him on it effectively and the media haven't addressed it at all.

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Jesse
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"Even Saturday Night Live made a joke about it a few weeks ago."

Lorne Micheals made a maximum legal donation to McCain. Check out opensecrets.org. It's a neat tool.

Last I checked, we weren't teaching one semester classes in High School on how to go about buying a home. With any luck, that will change. The fact that we haven't been doing it all along is kind of disgusting.

A lot of people are, frankly, idiots who trust people they shouldn't. Loan agents got substantial bonuses for getting people to sign High-Cost mortages.

People do crap like that all the time when they aren't educated about how credit works, taking car loans and credit cards with obnoxious interest rates when they qualify for better.

Unfortunately, all too many people are suckers for a smooth salesman.

Lenders weren't "forced" to make risky loans - they wanted a bundle of High-Cost mortgages to sell to some other sucker who they could convince that bundling removed all risk.

All I can say is that calling for a foreclosure freeze while we figure out which home owners can be saved and which can't, requiring banks to write down some of the losses which resulted from the stupid risks they willingly took, and then offering longer mortgage terms at more reasonable rates for the homeowners we're able to save (and taking the profit resulting from that interest)....

...seems like a hell of a lot more sensible plan to me than just buying all the mortages of people who are currently upside down at full face value, and then just knocking the home owners debt down to current market price as McCain has proposed.

Plan one, the taxpayer makes a long-term profit, and the banks and home owners both take a hit.

Plan two - screw you taxpayers. Everyone else walks.

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TomDavidson
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Regarding "getting steered:" when Christy and I first went to buy a house, we'd run some numbers ourselves and knew both what we could afford to pay monthly and what we were willing to owe over the long term. Our broker, on the other hand, told us we qualified for a mortgage nearly three times larger -- and when we balked at the initial monthly payment, showed us a variety of "packages" that'd keep the monthly payment down around our original maximum, but greatly increase the length of the loan (or inflate the payment later).

We didn't go with any of those suggestions, but we were definitely pressured into them. He even did the "let me go talk to my manager" thing that used car salesmen rely on.

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Rickoxo
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Jesse,

You have to be kidding if you think SNL is not overwhelmingly making fun of McCain/Palin, you just aren't watching. Did you see the recent election special - McCain hiding from Bush to avoid getting his endorsement, it was almost word for word from Obama's commercials. There is nothing even close to balance in terms of critique of Obama or democrats.

Second, I am always amazed when people describe ordinary americans as too stupid to be allowed to function in the market without some sort of government assistance. You might think that, but I sure wish liberal democrats would come out and say that the reason why the mortgage industry needs to be regulated is because most people are too stupid to be allowed to make decisions for themselves and that liberal democrat lawmakers know better than they do. Pawning the problem off on evil mortgage brokers or the lack of high school classes on how to buy a house hits me as a huge cop out.

In the end of your piece all of the sudden you move from individual mortgage buyers being too stupid to know how to buy a loan to financial institutions who buy bundled mortgages being suckers. So large financial institutions are too stupid to make decisions for themselves as well? Or are other financial institutions evil and super powerful and we should protect some financial institutions from others?

I get your goal of thinking about a solution that helps folks, and a foreclosure freeze sounds like a reasonable idea in some ways. The problem I have is with your basic understanding of the problem. I think you have it so fundamentally wrong that it makes me both doubt the quality of your thinking about a solution and it sure makes me nervous about any policies you'd recommend for the future.

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TomDavidson
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So, Rick, what's your understanding of the problem?
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RickyB
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Rick, mortgages are not meant to be leveraged investment vehicles. Why do you think they are? There's a reason it was banned as part of the lessons of the depression. There's a reason removing the baqn brought swift destruction.
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Jesse
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There's plenty of stupid and self-delusion to go around in the marketplace, Rick. The Dutch were smart enough to invent modern markets, and followed it up with the Tulip boom and bust within a generation.

Maybe you think snake-oil salesmen should have free reign, but most of the American People don't agree with you.

Not all of us are the kind of people who think it's ok to sell patent medicines loaded with opium without a "Warning : Highly Addictive" lable on the bottle.

We could go into the fact that Lorne didn't want Tina doing Palin again, and was pissed as hell when she and Pohler went off-script in the first appearance, and how the Brass left him with no choice because they got the highest ratings the show has had in 15 years...but that would require an understanding of how capitalism works.

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Rickoxo
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But you didn't deal with the simple issue that you seem to think most people are to dumb to be able to navigate the mortgage market by themselves. Product labeling makes a lot of sense to me, I agree. Mortgage brokers being able to pull a gun on you and force you to sign a bad loan, I agree, let's not have that either. But what is the principle behind your analysis?

Right now your primary operating theory seems to be going back and forth between evil snake oil salesman and stupid people. The trick for me is, it seems many liberal democrats have this dual idea, but when it comes to public discourse and making rules, the only piece they talk about is evil business instead of coming out and saying publicly they think the public is too stupid to be allowed to operate by itself and needs politicians to make decisions for them.

Product labeling rules make sense because an individual can't see what ingredients are hidden inside a product, or what chemicals/materials were used in making a product. A mortgage is pretty transparent. There just aren't that many parts to it. The issue isn't protecting consumers from something they can't see or possibly know about, the issue seems to be that you want to make it so people can't buy something you think they shouldn't want.

So is this your principle? You or some person who knows better decides what people should want and then that's all that's possible? There are certain areas, drugs, alcohol, where we restrict people's purchasing for the public good, so I get that this is a possibility, but again, think about the principle. Drugs, alcohol are addictive so one can make an argument that people's ability to decide for themselves is impaired. So what argument are you making for bad mortgages? The price was so low I couldn't help myself? :-)


Throwing out silly comments like "snake-oil salesmen should have free reign" starts to turn this into a typical public forum bash fest as well as you writing like you're Lorne Michaels' close personal friend. Or did you read something where he said that so that means its true?

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Rickoxo
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"mortgages are not meant to be leveraged investment vehicles. Why do you think they are? There's a reason it was banned as part of the lessons of the depression."

I never said I think mortgages should be leveraged nor that I think the multi-layered financial products wall street created and traded weren't a big part of the problem. If there was a weakness of the original OSC article for me it was that it didn't even mention that there was a lot of blame to go around.

I could imagine setting ratios for holdings of financial institutions, that seems reasonable, and it hits me it would make more sense to have regulation tied to the degree of federal support (i.e. federal deposit insurance, access to money, etc.)

If there were true diversity in financial institutions such that even if the Lehman Brothers or Bear Stearns got hammered from a major pull back in housing prices, the financial industry as a whole wouldn't get trashed, that would seem to make good sense.

And maybe the food analogy (i.e. labeling ingredients and rough proportions) would be helpful for things like insurance companies so that they have to disclose where their assets are invested. Should that be regulated? I'd lean more towards what either already exists or I imagine would emerge, some type of rating system where insurance companies disclose the ratio of their funds that are invested in various asset types and people decide how good the company is. I get that's not quite at finished policy level :-), but it's looking at a couple of what I saw as the key pieces.

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Rickoxo
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Tom,

I don't know if I know of any succinct way to describe the basic problem, but part of what hits me is the degree to which the government helps create the problems it then wants to say it should be responsible for solving.

Creating Fannie Mae and Freddie Mac was one step, choosing to allow risky loans was a second step, politicizing the regulation and oversight process was another step and democrats now saying that the entire problem is due to Republican regulation loosening is another.

It's pretty rough to tell industry they shouldn't pull Enron like tricks when government run entities do the same kinds of things. At some level, my biggest framing of "the problem" is that both republicans and democrats far too often see government as ways to get power and make money.

If we can't get government, who is explicitly charged with acting to promote the public good, to act on the public's behalf or at least in a way that isn't dangerous and self-serving then how can we hold business to a higher standard?

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TomDavidson
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quote:
If we can't get government, who is explicitly charged with acting to promote the public good, to act on the public's behalf or at least in a way that isn't dangerous and self-serving then how can we hold business to a higher standard?
So your summation of the problem is that the problem is universal and irresolvable?
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Jesse
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A 400 page mortage is pretty much a bottle of snake-oil to the average homebuyer. Just as they would need a chemist to figure out what's in the bottle, they need a lawyer they can trust to read the mortage for them.

The thing is, most people haven't been educated to understand that. They trust their lender to also act as their financial advisor. It's dumb, but a lot of people do it.

"Evil" is kind of far from what I've said - "Amoral" and "without ethics" would be a lot closer.

Mass delusions in markets are far from uncommon...they're more "par for the course".

Ponzi schemes are illegal for a reason. Too many people are dumb enough to fall for them.

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Rickoxo
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Jesse - I'm not sure when the last time you bought a house was, but I run a non-profit that for ten years developed affordable housing and helped first time home buyers buy their first house.

There's just no such thing as a 400 page mortgage and like I said earlier, there are only a few key numbers about a mortgage that one has to pay attention to. The comparison with food doesn't work and you pushing at it doesn't make it fit any better.

So I'm still waiting, are you saying Obama should come out and say people should not be allowed to buy interest only, negative amoritization or adjustable rate loans because they are too dumb and he (and you) know better?

If you're unwilling to state the reason for a policy publicly, then I'm nervous about your argument that it's for the "good of the people." I'm nervous that you are the one deciding the intelligence level of people and then what's best for them. I have no idea where a belief system like that ends and I don't like the sound of it being a significant factor in policy making.

I believe in the role of government to help prevent fraud, that hits me as a clear function of government. But the move from preventing fraud to preventing bad choices is a huge leap that leaves government with a precedent to micromanage the details of people's economic lives in a way they are not equipped to do and sure as heck haven't demonstrated any expertise in doing for themselves.

Again, your examples show the problem with your own argument - Ponzi schemes are fraud, snake oil was fraud - adjustable rate mortgages with baloon payments are not fraud, they are just risky.

Imho, you completely undermine your own argument by not being clear (or treating as equivalent) fraud perpetrated by a seller and a buyer making a bad choice.

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Jesse
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Rick, I've seen the beasts. As thick as a novel. Scheduled balloon payment buried about ten pages in.

I completely believe (no sacrasm) that your non-profit, motivated to help home-buyers get into homes they could afford rather than just generate paper to bundle and leverage, didn't do crap like that.

Now, a co-worker brought this horrific thing into work, and a bunch of us sat around the break room table going over it. In this instance, the loan agent had doubled his income in order to qualify him. He flat-out swore he'd given them a couple of months of pay-stubs. The agent just inflated the ammount.

So, yes, I would say that of the current crop of "bad" mortages, fraud by buyers and lenders are probably pretty much a wash.

Don't get me wrong, I know there were people who simply lied to get into a house they thought they could sit on for two years and then flip for a huge profit before their rate reset. On the other hand, you know at least as well as I do that a lender who fails in due dillegence is going to get burned.

That doesn't mean I'm against fraud prosecutions of either loan agents or borrowers.

That's one big reason why no plan that tries to "save everybody" is worth considering.

Flatly, yes, I believe we're right to limit what kind of loans FDIC insured lenders can give - they get most of their business on the basis that they're backed by the Feds.

I also believe we're right to limit how "creative" a mortgage will be considered acceptable for those banks to leverage, or hold as reserves.

Otherwise, greed and gullibility combine to tank our entire economy.

[ October 27, 2008, 12:27 AM: Message edited by: Jesse ]

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Rickoxo
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Tom,

I remember a West Wing (before the show got way too cheesy) where Sam was talking to the chief of staff guy about not having come up with any improved solution for the Israeli-Palestinian conflict. Leo walked away and Sam said after him, "You know I'm not done thinking about it, right?"

I wish I knew some easy answer, but if you're framing the fact that there isn't one as some sort of cop out on my part, I don't buy it. String theory is a great idea, could explain a lot of stuff, but no one knows how to test it yet. Lots of folks are working on it, but they have no idea that works yet.

Human evil and people being greedy/stupid/selfish most likely is unresolvable. Fine tuning (or majorly overhauling) government so that the ways in which those qualities affects outcomes isn't unresolvable at all.

I do think there are some principles that could help. Disclosure can be helpful. Structured disclosure of the most critical details in forms that support their dissemination and interpretation hit me as helpful as well.

A second piece is simplification. Our current tax system is designed to allow congress to give special benefits to friends in exchange for money and support. Simplify the tax system so that there are no loop holes for anyone and one huge way that congress can extort business disappears. Make it a rule that no one who has ever worked for congress can work in any context that includes anything related to lobbying.

A third piece is that our system of government is based not on trusting people's goodness but on creating an adversarial challenge so that as any one governmental entity acts, other entities can challenge what they did. Even though it looks like republicans and democrats are at war, I don't believe the current system works at all. But I wonder about tweaks to the system where instead of buying off the opposition with a committee seat or a spending project, there could be some sort of "productive" adversarialness.

A last thought. Churchill said democracy was the worst form of government, except for all those others that have been tried. So I don't start with some sense that life will always be rosy (I'm not saying you do either), the Dow Jones will always go up and home prices will always rise. I think life in any country will include both good times and hard times and the fact that we're having a crisis doesn't mean that our system is fundamentally flawed.

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TomDavidson
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quote:
I wish I knew some easy answer, but if you're framing the fact that there isn't one as some sort of cop out on my part, I don't buy it.
My point is only this: that if you're criticizing people for not being able to produce workable solutions by virtue of their not having any understanding of the "real problem," you yourself should be able to demonstrate either a workable solution or an understanding of the problem. Saying "you can't understand this problem because I don't understand it, either," is not a compelling argument.
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Rickoxo
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I'm not sure if I'm understanding your post correctly, but if your point is that I'm criticizing Jesse and/or Obama for suggesting heightened regulation of the mortgage industry and saying that's a bad idea, I gave what hit me as two fairly substantial reasons why I think it's a bad idea. I don't know any place where I said I don't understand the problem so therefore you can't. What I intended to communicate is that I know of no easy solution to fix government such that corruption, self focus and stupidity no longer result in bad policies.

First, I think there's a difference between fraud and making bad choices and I don't think government can make rules that regulate people's economic choices that rule out the possibility of bad choices.

Second, government in this case has proven that it is a huge part of the problem, so to trust it to fix the problem is like asking a con man to treat you better on your next deal together.

I think any solution that doesn't address those two fundamental understandings of the problem is flawed and will be highly unlikely to produce any helpful results.

It's seeming to me like I already said this which can be a sign I was unclear and hopefully this makes it clearer or maybe I didn't get what you were asking about and I just repeated myself without getting your question.

Let me know if this helps or if I missed what you were asking about

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Thomas
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quote:
Originally posted by Rickoxo:
I'm not sure if I'm understanding your post correctly, but if your point is that I'm criticizing Jesse and/or Obama for suggesting heightened regulation of the mortgage industry and saying that's a bad idea, I gave what hit me as two fairly substantial reasons why I think it's a bad idea. I don't know any place where I said I don't understand the problem so therefore you can't. What I intended to communicate is that I know of no easy solution to fix government such that corruption, self focus and stupidity no longer result in bad policies.

First, I think there's a difference between fraud and making bad choices and I don't think government can make rules that regulate people's economic choices that rule out the possibility of bad choices.

Second, government in this case has proven that it is a huge part of the problem, so to trust it to fix the problem is like asking a con man to treat you better on your next deal together.

I think any solution that doesn't address those two fundamental understandings of the problem is flawed and will be highly unlikely to produce any helpful results.

It's seeming to me like I already said this which can be a sign I was unclear and hopefully this makes it clearer or maybe I didn't get what you were asking about and I just repeated myself without getting your question.

Let me know if this helps or if I missed what you were asking about

1. Term Limits
2. Line Item Veto
3. No Lobby Contact While Congress is in Session

Those three changes would shape up American politics for the better than anything else I've heard anywhere.

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Everard
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Line item veto makes congress irrelevent and puts all the power of the legislature into the hands of the executive.

Welcome to ornery. You are wrong.

Really. Unless you've somehow found a way to prevent less then perfect presidents from coming to office.

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G2
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quote:
Originally posted by Everard:
Line item veto makes congress irrelevent and puts all the power of the legislature into the hands of the executive.

Congress can still override the line item veto just as they do any other.

The lack of a line item veto concentrates more power in the legislature and allows for way too much pork.

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Jesse
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Because that's the source of our problems? The Presidency has not become Imperial enough?

The President has a line item veto if he has the guts to use it. "Remove this pork, and next time I won't veto". Pretty straight-forward.

Term limits are also stupid. They leave us with Representatives worried more about voting to secure a cushy job in the private sector as a pay-off than they are worried about standing before the voters.

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FiredrakeRAGE
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Jesse,

Agreed. Line-item budgeting in the House would (imo) be a much better solution. It would increase transparency in government without changing the balance of power between the Congress and the Executive.

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Jesse
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BTW - I made the mistake of voting for term limits in my State Legislature.

Just 'cuz something is stupid doesn't mean I'm incapable of falling for it.

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eJames
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Ninja-loans were well known to be extremely risky, nevertheless strongly encouraged by the Community Reinvestment Act. Since we provide loan credit income verification services to the credit rating services, we got to see the incomes claimed on credit applications and saw problems coming years ago. The income amounts were inflated about 80% higher than our competitive survey data showed to be normal. Either credit applicants were lying or the commission-paid loan brokers were padding the numbers submitted, or both. We published repeated warnings; none of the media cared; only some Repub senators listened two years ago, but they shortly therafter lost their clout in Congress.
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MattP
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quote:
Ninja-loans were well known to be extremely risky, nevertheless strongly encouraged by the Community Reinvestment Act.
How were they "strongly encouraged" by the CRA?
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eJames
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You can read the Act yourself or Google it. This is the simplest summary, at the Wiki site, http://en.wikipedia.org/wiki/Community_Reinvestment_Act, although it may not be neutral.

A lot of it seem to deal with its provisions calling for a refusal of FDIC insurance if community organizations accused the lender of withholding loans to minorities. If the bank was conservative, they could be barred from Federal Reserve participation; if they were liberal, no harm and no foul (until now). Read it; OSC cited it correctly.

[ October 30, 2008, 02:40 PM: Message edited by: eJames ]

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Wayward Son
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But aren't the majority of "bad loans" unrelated to CRA?
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Jesse
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Yes. The vast majority. CRA loans also tend to be for ammounts well below medium home price, meaning their total dollar value was a good deal lower than their raw numbers might lead one to expect.

CRA loans are also defaulting at lower rates than all mortages taken as a whole.

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eJames
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The reforms that would have reined in Freddie Mac and Fannie Mae, including safeguards against their fulfilling their minority housing goals by buying the risky subprime-mortage backed securities, were opposed by Dems as racially-motivated attacks on CRA and its objectives.
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TomDavidson
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Yes. But as has been pointed out, the CRA loans are a tiny part of a much larger problem.
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