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t r u t h o u t | Shall We Call It a Depression Now?

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Shall We Call It a Depression Now?
Friday 05 December 2008

by: Robert Reich, Robert Reich's Blog

Today's employment report, showing that employers cut 533,000 jobs in November, 320,000 in October, and 403,000 in September - for a total of over 1.2 million over the last three months - begs the question of whether the meltdown we're experiencing should be called a Depression.

We are falling off a cliff. To put these numbers into some perspective, the November losses alone are the worst in 34 years. A significant percentage of Americans are now jobless or underemployed - far higher than the official rate of 6.7 percent. Simply in order to keep up with population growth, employment needs to increase by 125,000 jobs per month.

Note also that the length of the typical workweek dropped to 33.5 hours. That's the shortest number of hours since the Department of Labor began keeping records on hours worked, back in 1964. A significant number of people are working part-time who'd rather be working full time. Coupled with those who are too discouraged even to look for work, I'd estimate that the percentage of Americans who need work right now is approaching 11 percent of the workforce. And that percent is likely to raise.

When FDR took office in 1933, one out of four American workers was jobless. We're not there yet, but we're trending in that direction.

Consumers will tighten their belts even further. Even if they have a full-time job, they're witnessing these job losses or hourly declines all around them and wondering if their job could be next on the chopping block. Their indebtedness is still high, by historic standards. And many are worried as well about their mortgage payments. So consumer spending is also falling off a cliff.

Two things are needed: First, the massive Treasury bailout of the financial industry must be redirected toward Main Street - loans to small businesses, distressed homeowners, and individuals who are still good credit risks. Second, a stimulus package must be enacted right away. It needs to be more than $600 billion - which is 4 percent of the national product. It should be focused on job creation in the United States - infrastructure projects as well as services. Construction jobs are critical but so are elder care, hospital, child care, welfare, and countless other services that are getting clobbered. Service businesses accounted for two-thirds of the job cuts in November, meaning that the weakness in labor markets has shifted from the goods-producing sector of the economy to the far larger services sector.
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Since we have not hit the magic '2 quarter decline of GDP' we are still not even in a recession, technically.
And as zhukov stated, the malls are full and lines wrapped the blocks for the new Blackberry, so people are not desperate.

quote:
In economics, the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least 2 quarters. [1][2] The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction. [3][4]

The U.S.-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in [the] economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales."[5]
Dream on! No politician in his right mind would initiate such an action -- he might be next!

As most of the problems with the credit market may be traced to Fannie Mae/Freddie Mac and the CRA and their Dodd, Frank and Schumer boosters, the Democrats hold the bag for the economic problems.

Surprisingly, to me, George Soros said as much in a recent interview, concerning Mae/Mac and similar institutions in Germany.
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zippadeedoodah:

It's a recession when my neighbor loses his job.

It's a depression when I lose mine.

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That was the line that Reagan used when he ran against Carter in 1980.

Have we hit the bottom yet or are we going to continue the policies that led us here, or bring real change.
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Howard Roak:

Dream on! No politician in his right mind would initiate such an action -- he might be next!

As most of the problems with the credit market may be traced to Fannie Mae/Freddie Mac and the CRA and their Dodd, Frank and Schumer boosters, the Democrats hold the bag for the economic problems.

Surprisingly, to me, George Soros said as much in a recent interview, concerning Mae/Mac and similar institutions in Germany.

_______________________________________________________________________________________________


Talk about dreams Howard the problems did not start with Fannie and Freddie but with the collapse of the housing market which was built on Wall Street speculation, inflated values and sub prime loans. Fannie and Freddie jumped into this market after Wall Street were already profiting from these policies.

Some banks in Europe also bought into these schemes and many bought the bad loans from US Banks.

Better turn off Fox and join the real world although I do agree that every President that carries out war crimes will not be brought to justice in the US. They need to be handed over to the Hague.
Pogo,

Obviously, you have not studied the problem. Fannie and Freddie purchasing over half of all the mortgages in the nation (about $6 trillion) including the subprime mortgages were the precursor that caused rising prices of homes.

Only one European bank, to my knowledge, bought significant amounts of the subprime based derivatives. European and UK banks have their own unique problems, despite being highly regulated.

We've discussed this before and every time you've shown little knowledge of overseas banking affairs. Its an embaressment to see a grown man (I assume) repeat his same mistakes over and over.

As to the ICC, I've shown several times the evidentiary rules are highly suspect with no documented trail of evidence, use of hearsay allowed as fact and second party statements allowed as testimony.

How many ICC hearing have you attended?
Last edited by Howard Roark
If Obama lives up to his pre-election hype, then the "...policies that led us here..." will be doubled or perhaps squared, and we may have the hyper-inflation not seen since Germany in the post-war years. However, he seems to have shown a glimmer of sanity in promising not to end the Bush tax cuts. So who knows.

Whether you like it or not (or believe it or not) our economy is fundamentally based on faith...faith in the strength of the economy, that is. The news media telling everyone how bad things are just simply makes things worse. Economic news falls within the "self-fulfilling prophesy" domain.
Howard Roak:

Obviously, you have not studied the problem. Fannie and Freddie purchasing over half of all the mortgages in the nation (about $6 trillion) including the subprime mortgages were the precursor that caused rising prices of homes.

Only one European bank, to my knowledge, bought significant amounts of the subprime based derivatives. European and UK banks have their own unique problems, despite being highly regulated.

We've discussed this before and every time you've shown little knowledge of overseas banking affairs. Its an embaressment to see a grown man (I assume) repeat his same mistakes over and over.

As to the ICC, I've shown several times the evidentiary rules are highly suspect with no documented trail of evidence, use of hearsay allowed as fact and second party statements allowed as testimony.

How many ICC hearing have you attended?
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Typical Right Wing answer, lies, nonsense and insults.

As I have explained in the past the alternative progressive media had been following the bubble for years. While the Corporate Media Pundits beamed with assurance others questioned it. The reason for the collapse was Banks and Credit Firms selling mortgages as investments. They enticed people to buy even when they had questionable credit. The Lender didn't care because they sold the loans. Because of stagnating wages many people were forced to use these loans if they wanted to buy a home. As I say they were encouraged to do so by Corporate Media Pundits who assured it was a good investment as the Homes would rise in value. Investment speculation by Wall Street drove housing prices up and over inflated their value.
Bush and Greenspan both bragged on how the scheme allowed people to buy homes. It was nothing more then another Ponzi scheme from Wall Street.

Wall Street was profiting for years before Fannie and Freddie jumped into the Market. They did so because they were losing a share of the market. They were cheered by the Corporate Media and Conservative pundits but the left warned it would be fatal.I know a bank in Germany, (who's name I forget) used the same scheme and I believe a few others did also.
The main problem with European and other banks around the world is they bought these loans believing they were good. They were rated triple A but oversight was corrupted by Wall Street also.

When housing began to out price itself and an economy built on low wages, consumerism and credit began to slag it began the collapse. Banks needed cash and raised the interest rates and because wages for working people have stagnated they could not meet the payments, which basically doubled.

The Malls may be crowed but they ain't buying. I am in a small business and we are laying off people, as well as the rest of the country, because of lack of sales.
Last edited by Pogo142
quote:
The Malls may be crowed but they ain't buying. I am in a small business and we are laying off people, as well as the rest of the country, because of lack of sales.

I disagree, they ARE buying, and lots of things. Most carts were full or overflowing.
You keep saying its all the right's fault and the left warned of the collapse. Frank was one of the cheerleaders saying everything was great (years ago) as was Dodd. Phil Graham was pushing from the right as well as the two idiots of Fannie and Freddie. The reason for the collapse was pure greed, plain and simple. Greed of the banks, greed of the leaders of Fannie and Freddie, greed of the Congressmen getting payoffs (Newt is in this group), and greed of the consumer buying something they knew they could not afford. If I go out today and buy a Lamborghini, will you pay for it when I can't? Should Obama bail me out for my own stupidity?
During the great depression people lined up for a bowl of soup, probably their only meal that day.

Today people line up the day after Thanksgiving for a $300 laptop or $500 LCD television.

During the depression people desperately looked for any kind of work, packing their families and traveling to wherever employment could be found. They would work for anywhere from 25 to 50 cents a day and were glad they had it.

Today people browse internet job sites for new careers, taking classes online to advance their skills and usually find what they are looking for. Many of those jobs include health insurance and 401k. Those who don't look for work are taken care of by the government, so because their needs are taken care of, they have no desire to be productive.

During the depression my great granddad would pick people up in his truck since he was one of the few that had one and take them to and from church every week. Most people either rode a horse, mule, or walked.

Today almost everyone over 16 has their own car and clog up the streets with heavy traffic. Lots of people are deep in debt with car loans and leases, not to mention filling the tanks of their SUV's spending hundreds of dollars every month.

During the depression people would save what little they could to go to the movies, which may have been once a month at most. The fortunate few had radios which they gathered to listen to, but many couldn't afford them.

Today people pay $100+ a month for cable, spend $10 for a movie ticket, $15 for a DVD, $250 for a Wii or even more for an XBox 360 or PS3 with games averaging anywhere from $30 to $60 each.

So to answer the question, no we can't call it a depression now. We're not even close. To say this is a depression is to insult our grandparents and great grandparents who actually lived through it.

I asked my granddad if we were in a depression yet, he laughed. I wonder what he would think of that BS article Pogo posted?
I have gone through a number of recessions and I find that even though the economy is bad people will still try to spend for Christmas, but business is weak. Retailers are slashing prices to encourage sales because we know now is the time to sell, after Christmas it will be extremely slow again, as it was before Christmas.

That's the reason unemployment is rising, no business.

I agree it's greed but isn't it the Right Wing that tells us "Greed is Good?"

I have debated Conservatives for decades but when people like Reagan and Bush come to office these conservatives suddenly forget about the so called Conservative Principle they hold dear.

We have Corporate Democrats also but Barney Frank is not really one of them, though Shumer is. Fannie and Freddie are part of the collapse but are not to blame. Trying to blame them is really ignorant but in some cases understandable because that's the typical nonsense and distraction the Corporate Media is selling. Problem is many of the American people accept anything they tell us. But because of this recession and now the Internet people are questioning a little deeper, although not everywhere unfortunately.

Actually I have been trying to tell Conservatives, and liberals, that they have the American people split between Red and Blue on hot button emotional issues but we are working people who are being robbed by the Corporate Class. When we unite we will end this Corporate robbery and exploitation.

Let's not wait for it to become a real Depression before we wake up.
quote:
That's the reason unemployment is rising, no business.


Maybe it's because people keep screaming about how bad the economy is and scaring them from spending?

Think about it, do you have the same job you had two years ago? Are you making more, less, or the same?s

If you're making the same or more, then the economy hasn't really effected you. You are actually doing better than you were from last year because gas is half the price, giving you more spending money.

The only corporate robbery is companies begging for tax payer bail outs. The only group stealing from me is the government. I work for a large corporation, they pay me what I agreed to work for and offer 401k, health insurance, and free cable among other benefits. What exactly are they stealing from me?
You've hit the nail squarely on the head. The strength of the economy is the result, in large measure, of how strong people believe the economy to be. Confidence has been shaken because the market has corrected itself as the result of meddling. Economic forces are similar to laws of nature. You can fool around with them, but they are immune to what you wish they would be. It's similar to the dot-com bust when huge profits were made based on, well, nothing. Eventually someone realized they were selling huge bags of air for top dollar, and it fell apart. This is what has happened to the housing market, which precipitated the other things. It's also one of the causes of gas prices dropping drastically...a market correction.

Every morning on the news there's a segment, "The Economy In Crisis!" How can people gain confidence in an economy that is foundationally sound when the media constantly streams that message? A cynical person would think, "now that Obama has been elected, perhaps the mainstream media can tone it down a little..."
The economic melt down began when the over inflated housing market collapsed. That began last year and began the unraveling of an economy based on consumers and credit.

Working people's wages have stagnated and barely keep up with costs while CEO pay has sky rocketed to 400 times the average worker.

Food Banks and shelters have been reporting increases for the last few years to critical point of running out of food and shelter.
quote:
Originally posted by Pogo142:
Working people's wages have stagnated and barely keep up with costs while CEO pay has sky rocketed to 400 times the average worker.


To be fair, the average worker doesn't have to buy into a company with his own money to get the job. This is typical of CEO positions. This might be a good way to ensure a viable company, though.

Would you work for a company when 90% of your pay depended entirely on the performance of your subordinates? And this refers to the other 99% of CEOs in this country, not the ones whose stories have hit the news.
quote:
Food Banks and shelters have been reporting increases for the last few years to critical point of running out of food and shelter.


Cite your source.

The housing collapse came because people who shouldn't get a loan were given one. They were forced to due to the CRA. People defaulted and the bank got stuck with the house.
We have a "faith-based economy". In essence, the strength of the economy is based, in large part, on the belief that people have in its strength. It sounds like the old voodoo economics, but there it is. If enough people believe the economy is in trouble, they begin hoarding money rather than spending or investing, and selling off stocks which drive the stock price down.

The housing market is essentially the same. A house has no value beyond what someone's willing to pay for it. If you have a $20,000 house that someone's willing to pay you $50,000 for, then it magically becomes a $50,000 house. You haven't done anything to it; the increase in value is based on the perception on the part of the buyer that you have a more expensive house. This happened in Iuka in the early 90's when people from California migrated to the Yellow Creek ASRM facility and bought houses, some of them more than one, at inflated values. When the program was cancelled, the houses reverted to a realistic value, which was bad for the current owners but good for the local sellers.

There are checks and balances in place to prevent the type of stock speculation that triggered the first depression, but nothing can prevent people from being nervous about the economy and choosing to stash their money in a jar in the backyard rather than investing it in the stock market. I have pulled all of my 401k money out of stock funds. When people don't buy things, factories close, and people are laid off. If it gets too bad, it has to be "primed", as FDR did in the late 1930s. Right now, IMHO, confidence-buidling measures are essential to get the economy back on track. Continuing to pimp the story that the economy is crashing down around our ears may well cause it to happen, and happen disasterously.
Actually Liberals and Progressives have been pointing out how working people were passed by in Bush's "jobless recovery" and Corporate Globalization and this deck of cards would collapse. We were always told everything was fine by Bush supporters.

The melt down began when Wall Street and other speculators drove housing prices up for investments and profits. The Market was over inflated.

CEO's take the same "risks" in the company as the average worker but still make 400 times more.

As I have told you before Nash I have no time for nonsense, anyone with a brain who has been following the news for the last few years knows the strains and difficulties Food Banks and Shelters have been reporting.

No bank was forced to give loans to anyone with bad credit by the CRA. They gave out bad mortgages because they could sell the Mortgage and so they didn't care about a persons credit, they made their profits off the sale of the Mortgage. The CRA only prevented the discrimination people of color were subjected to. The majority of the defaults are not CRA.

The "safe guards" were dismantled by both Corporate Democrats and Republicans and cheered by the Corporate Media.
quote:
The melt down began when Wall Street and other speculators drove housing prices up for investments and profits. The Market was over inflated.

CEO's take the same "risks" in the company as the average worker but still make 400 times more.

As I have told you before Nash I have no time for nonsense, anyone with a brain who has been following the news for the last few years knows the strains and difficulties Food Banks and Shelters have been reporting.

No bank was forced to give loans to anyone with bad credit by the CRA. They gave out bad mortgages because they could sell the Mortgage and so they didn't care about a persons credit, they made their profits off the sale of the Mortgage. The CRA only prevented the discrimination people of color were subjected to. The majority of the defaults are not CRA.


You failed to cite your source on your claim that food banks are reporting increases and running out of supplies. Please cite your source.

I've provided link after link from respected economists proving that the CRA was the cause for the economy's problems. Banks had to loan money to people with bad credit or lose their FDIC and be accused of red lining.

I can only provide the proof, I can't make you read it. Obviously you didn't read anything I posted so it would be a waste of time to research it again. Therefore the burden of proof is on you. Prove to me that the CRA does not force banks to loan money to unqualified people. Legitimate sources only.


What risk does an average worker take in someone else's' company? Risk of injury? Sure, we have risk of injury just walking out the door, but that's what workman's comp and insurance is for.

Explain to me what risk an average worker takes that is equivalent to a CEO investing his own money into a company? Be specific and provide sources.

I've been following the news for the past few years, but unlike you I follow legitimate news sources. Getting your information from the Socialist magazine and other radical left websites is not being truly informed.
Just to make a comment on the food bank question Nash raises. There is a local food bank my mother makes donationations to as do others in local churches. They told the secretary of mom's church that they have had about 50% increase in the last year of neady families. They don't have a web site, and probably don't make any reports nationally, but they are honest peope who help needy people and I believe them.

On the other hand, the CRA which was passed only required equal treatment for Blacks making loans as Whites had. Did not require banks to loan to bad credators. That sort of predatory practice started when banks would make mortage loans and them sell them to larger banks who would sell them on Wall Street. Sheer greed on the part of the lending industry, preying on ignorance and just plain vanity and stupitidy of the borrowers. Problem is, WHO ACTUALLY OWNS THE BAD LOANS. Turns out , a lot of us who have 401Ks and retirement accounts are the owners. What a damm mess !
The Government-Created Subprime Mortgage Meltdown

by Thomas J. DiLorenzo





The thousands of mortgage defaults and foreclosures in the "subprime" housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call "communities of color" that they might not otherwise make based on purely economic criteria.

The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various "neighborhood organizations," as they like to call themselves, such as "ACORN" (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.

So-called "community groups" like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA "protest" is issued by a "community group." This can cost banks great sums of money, and the "community groups" understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.

A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the "Neighborhood Assistance Corporation of America." He once boasted to the New York Times that he had "won" loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one "community group" operating in one city – Boston.

Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters.


Consequently, banks in every community in America have been forced to hold a portfolio of bad loans, euphemistically referred to as "subprime" loans. In order to compensate themselves for the added risk of extending these loans, many lenders have increased the lending fees associated with mortgage loans. This is simply an indirect way of doing what banks always do – and what they must do to remain solvent: charging effectively higher rates of interest on riskier loans.

But this is discriminatory!, complained the "community organizations." Thus, if one browses the ACORN web site, one can read of their boasts of having "predatory lending laws" passed in numerous states which outlaw such fees, prohibiting banks from protecting themselves from the added risk involved in making forced loans to "subprime" borrowers.

These are price control laws, and price controls always cause shortages. Normally, banks would respond to such laws by extending fewer riskier loans. But in this case the banks are forced to continue making the marginal loans by their bureaucratic masters at the Fed and the other three federal bureaucracies mentioned above. So-called predatory lending laws therefore force the banks to "eat" the losses. This is undoubtedly a contributing factor to the bankruptcy of dozens of mortgage lenders over the past year.

Then of course there is the issue of the Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city over the past decade or so. This created a further problem for the financial institutions that are victimized by the CRA. They are forced to make a certain amount of bad loans, but because of the Fed-created explosion in housing prices, many thousands of subprime borrowers no longer qualified, by a long stretch, for conventional mortgages based on their incomes.

The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown – the inability of thousands of subprime borrowers to afford their mortgages now that their rates have adjusted upward. Thus, the combination of the Fed’s enforcement of the CRA (with the help of political pressure groups like ACORN) and its post 9/11 monetary policy in general are the reasons for the bursting real estate bubble and the "subprime" mortgage meltdown.

Don’t expect to read about this in the "mainstream media," however, which generally views groups like ACORN as heroic champions of the poor, laws like the CRA as anti-discrimination laws, and places all of the blame for the subprime mortgage meltdown on greedy capitalists, especially mortgage brokers. Encouraged by such reporting, the odious Senator Charles Schumer of New York has promised federal legislation that will reign in these miscreants, while the Bush administration is proposing an indirect bank bailout by having the Federal Housing Administration cover many of the bad "subprime" loans. This will create what economists call a "moral hazard" by encouraging even more bad loans to be extended in the future. Every banker in America will be glad to extend loans (at high rates of interest) to the most uncreditworthy borrowers if he thinks there is no possibility of default with the FHA effectively guaranteeing the loan.

September 6, 2007

Thomas J. DiLorenzo [send him mail] professor of economics at Loyola College in Maryland and the author of The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War, (Three Rivers Press/Random House). His latest book is Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe (Crown Forum/Random House).
That's a good article LMM, hopefully Pogo will read it.

Just in case he doesn't, here is a key point that illustrates that the CRA did in fact force banks to loan to unqualified borrowers.

"Banks have been placed in a Catch 22 situation by the CRA: If they comply, they know they will have to suffer from more loan defaults. If they don’t comply, they face financial penalties and, worse yet, their business plans for mergers, branch expansions, etc. can be blocked by CRA protesters, which can cost a large corporation like Bank of America billions of dollars. Like most businesses, they have largely buckled under and have surrendered to their bureaucratic masters. "

It can't be any more clear than that.
Just like I used to tell my kids: I won't force you to do something; I'll just explain the consequences if you don't. And make the consequences harsh enough that they wouldn't make any other choice, unless they were my oldest daughter...

CRA didn't force them to do it, they just tilted the playing field to ensure any other choice they made had undesirable consequences. It's intellectually dishonest, but what would you expect?
I don't have time now to read the article LMM but I will check it out later.

I have a new computer and most of my files are in my old computer and I don't have time to start searching but here is one article I have and I will look for others later.

As I say the Progressive Press has been following this for years.

Pam Martens: The Two Trillion Dollar Black Hole

Link


November 13, 2008
A Credit Crisis or a Collapsing Ponzi Scheme?
The Two Trillion Dollar Black Hole
By PAM MARTENS

Purge your mind for a moment about everything you've heard and read in the last decade about investing on Wall Street and think about the following business model:

You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you "stay invested for the long haul" you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don't have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.

Now consider how Wikipedia describes a Ponzi scheme:

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."

Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).

We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint.

But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place. Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.

Fortunately for American taxpayers, Bloomberg News has some inquiring minds, even if our Congress and prosecutors don’t. On May 20, 2008, Bloomberg News reporter, Mark Pittman, filed a Freedom of Information Act request (FOIA) with the Federal Reserve asking for detailed information relevant to whom the central bank was giving these massive loans and precisely what securities these firms were posting as collateral. Bloomberg also wanted details on “contracts with outside entities that show the employees or entities being used to price the Relevant Securities and to conduct the process of lending.” Heretofore, our opaque central bank had been mum on all points.

By law, the Federal Reserve had until June 18, 2008 to answer the FOIA request. Here’s what happened instead, according to the Bloomberg lawsuit: On June 19, 2008, the Fed invoked its right to extend the response time to July 3, 2008. On July 8, 2008, the Fed called Bloomberg News to say it was processing the request. The Fed rang up Bloomberg again on August 15, 2008, wherein Alison Thro, Senior Counsel and another employee, Pam Wilson, informed the business wire service that their request was going to be denied by the end of September 2008. No further response of any kind was received, including the denial. On November 7, 2008, Bloomberg News slapped a federal lawsuit on the Board of Governors of the Federal Reserve, asserting the following:

“The government documents that Bloomberg seeks are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression. The effect of that crisis on the American public has been and will continue to be devastating. Hundreds of corporations are announcing layoffs in response to the crisis, and the economy was the top issue for many Americans in the recent elections. In response to the crisis, the Fed has vastly expanded its lending programs to private financial institutions. To obtain access to this public money and to safeguard the taxpayers’ interests, borrowers are required to post collateral. Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed’s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom.”

As evidence that Bloomberg News is not engaging in hyperbole when it uses the word “cataclysmic” in a Federal court filing, consider the following price movements of some of these giant financial institutions. (All current prices are intraday on November 12, 2008):

American International Group (AIG): Currently $2.16; in May 2007, $72.00

Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing; share price in April 2007, $159

Fannie Mae: Currently 65 cents; in June 2007 $69.00

Freddie Mac: Currently 79 cents; in May 2007 $67.00

Lehman Brothers: Currently 6 cents; in February 2007, $85.00

What all of the companies in this article have in common is that they were writing secret contracts called Credit Default Swaps (CDS) on each other and/or between each other. These are not the credit default swaps recently disclosed by the Depository Trust and Clearing Corporation (DTCC). These are the contracts that still live in darkness and are at the root of why the Wall Street banks won’t lend to each other and why their share prices are melting faster than a snow cone in July.

A Credit Default Swap can be used by a bank to hedge against default on loans it has made by buying a type of insurance from another party. The buyer pays a premium upfront and annually and the seller pays the face amount of the insurance in the event of default. In the last few years, however, the contracts have been increasingly used to speculate on defaults when the buyer of the CDS has no exposure to the firm or underlying debt instruments. The CDS contracts outstanding now total somewhere between $34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness. It is also quite likely that none of the firms that agreed to pay the hundreds of billions in insurance, such as AIG, have the money to do so. It is also quite likely that were these hedges shown to be uncollectible hedges, massive amounts of new capital would be needed by the big Wall Street firms and some would be deemed insolvent.

Until Congress holds serious investigations and hearings, the U.S. taxpayer may be funding little more than Ponzi schemes while companies that provide real products and services, legitimate jobs and contributions to the economy are left to fail.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com
quote:
I don't have time now to read the article LMM but I will check it out later.


Pogo, LMM highlighted in red two very important paragraphs. It took me about 15 seconds to read them.

I posted one single sentence that best proves your statement wrong. It would probably take 1 second, two at the most to read that once sentence.

You posted quite a long editorial from the Detroit Free Press, yet you don't have 15 seconds to spare to read an article that completely proves you wrong.

I find that hard to believe. It's just an excuse to avoid the truth, federal government interference with the CRA is to blame for the housing market collapse. You can't say it's not because you've been given the proof and refused to read it.
I didn't have time to read the article because I would be4 late for work.

I am going out now and will try to read it later when I get back or early tomorrow morning. I am interested in reading it so I can point out the lies.
11 Racist Lies Conservatives Tell to Avoid Blaming Wall Street for the Financial Crisis | Corporate Accountability and WorkPl..

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11 Racist Lies Conservatives Tell to Avoid Blaming Wall Street for the Financial Crisis

By Sara Robinson, Campaign for America's Future. Posted October 2, 2008.



Conservatives are twisting the facts beyond the breaking point to support their revisionist history. But don't be fooled.

Conservative pundits and politicians have piled onto the excuse like shipwreck victims clinging to a passing log: The real blame for the current economic crisis, conservatives would have you believe, lies not with anything they did, but rather with the 1977 Community Reinvestment Act -- a successful Carter-era program designed to get banks to stop covert discrimination, and encourage them to invest their money in low-income neighborhoods.

It's always easy to tell when the cons are completely lost at sea. The lies get more absurdly preposterous -- and also more transparently self-serving. But when they go so far as to openly and unapologetically latch onto race and class as an excuse for their woes (which this is, at its heart), you know they're taking on water fast -- and scared of going under entirely.

You can hear the conservative commentators burbling this CRA fable from the Wall Street Journal to the National Review; from Rush to YouTube. Neil Cavuto put the essence of the argument right out there on Fox News: "Loaning to minorities and risky folks is a disaster." See! It's all the liberals' fault for insisting on social justice!

Conservatives are twisting the facts beyond the breaking point to support their revisionist history. But don't be fooled: the financial crisis was caused by conservative financial follies and bankers run amok and nothing more. Here are the basic myths they're trying to push about the CRA -- and the facts that will enable you to fire back.

1. The CRA was a liberal boondoggle designed to con banks into funding housing for undeserving, unqualified minorities.

False. The Community Reinvestment Act of 1977 was the result of decades of disinvestment in poor and working-class neighborhoods. It was designed to put an end to "red-lining" -- a widespread practice in which banks refused to write mortgages for houses in certain neighborhoods, no matter who was applying or how creditworthy they were.


The Fair Housing Act of 1968 had made it illegal for real estate agents and banks to discriminate against homeowners on the basis of race. Red-lining soon emerged as a not-so-subtle way to continue this discrimination, by declaring, ahem, certain neighborhoods as unfit to invest in. By 1977, the results of this practice were becoming all too obvious, so Congress stepped and gave lenders a choice: if you want the FDIC to insure your deposits, you need to knock off the redlining.

The CRA didn't force lenders to make riskier loans than they would have otherwise. It simply required that they take each applicant on his or her own merits, and give people in poorer neighborhoods the same fair chance at a mortgage that everybody else in town was getting. It wasn't about preferential treatment. It was just about basic equality.

2. The CRA forced banks to lower their standards and make loans to all low-income families and people with poor credit -- and find banks that refused to comply.

No. The CRA has encouraged banks to lend fairly and responsibly for over 30 years. It does not impose fines. It does periodically examine FDIC-backed banks, and issues them a CRA compliance rating. A highly-rated bank must meet the financing needs of as many community members as possible, and must not discriminate against racial and ethnic groups or certain neighborhoods. However, a bank will not receive a high rating unless it is also maintains "safe and sound banking practices."

In other words, the CRA requires banks to lend to working-class families and people of color -- but only when those people have been deemed as creditworthy as anyone else.

3. The housing bubble burst when too many people with home loans mandated by the Community Reinvestment Act failed to make their mortgage payments.

False. The CRA only applies to FDIC member banks and thrifts. Back in the 1970s, these institutions were responsible for most of the country's mortgage lending. But starting in the 80s and on up to the present, we saw a huge boom in lending businesses-- such as finance companies like Countrywide -- that weren't banks, and didn't take deposits that required FDIC insurance. Thus, they didn't have any obligation to the CRA. And they were free to set their own lending standards, which were often far less cautious than those required of FDIC-insured banks.


4. The bulk of the "junk" loans that have been packaged into mortgage-based securities are CRA loans.

False. An analysis of Home Mortgage Disclosure Act (HMDA) data in the country's 15 biggest metropolitan areas found that 84.3% of the high-cost loans made in 2006 were originated by non-CRA lenders -- including 83% of high-cost loans to low- and moderate-income individuals. The Federal Reserve notes that, across the country, non-CRA lenders were twice as likely as CRA lenders to issue subprime loans to vulnerable borrowers. Furthermore, the Fed also reports that responsible mortgages made by CRA lenders have about the same low rate of foreclosure as other traditional mortgages.

5. If the government had just set the lenders free to do their thing, the market would have prevented this. It's just another example of how government oversight always leads to market failure.

Wrong again, buckaroo. As explained just above, up to four-fifths of these loans were issued by financial institutions that operated with little or no federal regulatory oversight. In fact, in 2006, only one of the top 25 subprime lenders was a CRA institution. A few others were mortgage/finance company affiliates of CRA-covered lenders; but even these were separate businesses that didn't operate under CRA rules (including Countrywide, CitiMortgage, and Wells Fargo Home Mortgage). Likewise: the vast majority of the top 20 issuers of risky interest-only and option ARM loans were not CRA-affiliated lenders.

If anything, the CRA example proves -- once again -- that government oversight not only works; it's essential to maintain safe and sane capital markets.

6. The CRA is just another failed liberal handout program.


No. The benefits of CRA have been substantial. Robert Rubin recently estimated that the law has channeled upwards of $1 trillion into distressed neighborhoods across the country -- including both inner cities and rural areas without much access to investment funds -- without putting up any taxpayer money beyond what it takes to operate the CRA itself. In these areas, home ownership is up -- and with it, the local tax base, which means more parks, more cops, more street repairs, and so on. There's more decent rental housing, too, because landlords can get loans for upgrades and improvements.

Small business ownership is also up. Low-income communities have become more attractive to outside investors, and more able to support community redevelopment efforts. And in places where people once cashed their paychecks at the convenience store and depended on payday loans, there are now full-service bank branches offering the same affordable financial services people in better neighborhoods take for granted.

The cons like to talk about the "ownership society." There is no ownership without access to capital. For 30 years, the CRA has been making private capital available to qualified people who want to bootstrap themselves into home and business ownership, and a secure place in the middle class.

7. OK -- if it works so well, why do we still need it? Haven't the banks finally figured by now out that redlining was a stupid idea?

If only. The very fact that the conservatives are trying to blame the mess on the CRA is, in itself, ample proof that we still need anti-redlining laws on the books. Fifty years into the civil rights era, and they're still arguing that it should be acceptable to permanently exclude people from the capital markets on the basis of race and class. Different millennium, same ugly story: "See? This is what happens when you give money to minorities and poor people. You end up wrecking the country!"

In other words: no, they haven't learned their lesson; and yes, they still believe in red-lining as much as they ever did. Racism is alive and well, and there are still plenty of Americans who would bring back housing discrimination in a heartbeat if the law allowed them to. Which is precisely why we can't allow them to.


8. If we can't blame the CRA, then who can we blame? How about the federal banking agencies, which outright told banks to go ahead and adopt risky lending practices? In particular, a 1992 Boston Federal Reserve Bank publication, Closing the Credit Gap: A Guide to Equal Opportunity Lending, told the banks that it was OK to adopt unsound lending practices.

Nice try, but still wrong. According to the National Community Reinvestment Association, the document cited above offered three new guidelines to lenders -- none of which are applicable to the current subprime crisis.

The first guideline was that the lack of proper credit history shouldn't be counted as a negative factor for potential homebuyers. Banks could use other evidence to assess the borrower's payment habits, including the timely payment of rent, utility bills, and other scheduled loans. Borrows still need to prove that they're reliable; they're just allowed to use documentation besides a credit report.

The second was to remind bankers that some households with debt ratios above the standard 28/36 criteria might still qualify for home loans. This guideline is very conservative by today's standards. Many problematic subprime loans were granted to borrowers with debt-to-income ratios above 50 percent, which was in no way sanctioned by the 1992 guidance document.

The third was that lenders could count Social Security, second jobs, and other verifiable income streams as valid sources of income when evaluating loan applications. But most subprime loans failures aren't related to alternative income sources. The real problem has been with "liars' loans," in which the reported income streams are never verified at all.

9. Well, then...it must be Bill Clinton's fault, right? In 1995, Clinton changed the Community Reinvestment Act to allow the securitization of CRA and subprime mortgages. That's what started all this.


Talking point regurgitation at its worst. The 1995 revisions to the CRA only changed the way in which a bank's CRA compliance is evaluated. They made no mention of mortgage securitization at all. Under the 1995 rules, banks are rewarded only for making mortgages in their communities, not for re-selling mortgages as securities.

10. OK, then -- it's the Democratic Congress's fault! President Bush and Senator McCain tried to stop the subprime mortgage crisis, but Democrats blocked their efforts.

It's not lying. It's a gift for fiction. This one's actually made it into a TV ad. The claim is that Bush and McCain supported the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have created a new government agency to oversee Fannie Mae and Freddie Mac and other federal housing programs.

However, there's no pony in this manure pile. This bill would have done nothing to stop the rash of subprime lending that preceded the housing bubble. It only provided oversight for Fannie and Freddie -- but it said nothing at all about the companies that issued subprime mortgages.

11. No serious conservative economist would have ever approved of the CRA.

False. In March 2007, Federal Board Chairman Bernanke -- no liberal he -- noted that CRA has helped institutions discover and enter new markets that may have been previously under-served and ignored by insured depositories.


These myths are floating around everywhere this week -- a Big Lie that's being repeated so often that Americans may well start to believe it. The real objective of the "blame the CRA" campaign is to pre-emptively discredit any future progressive proposals that involve using government regulation to make the capital markets behave -- and to get the free-market fundamentalist faithful back in the fold.

Time to fire back, and replace the Big Lie with some real truth.


Sara Robinson is a twenty-year veteran of Silicon Valley, and is launching a second career as a strategic foresight analyst. When she's not studying change theories and reactionary movements, you can find her singing the alto part over at Orcinus. She lives in Vancouver, BC with her husband and two teenagers.
AMY GOODMAN: Bruce Marks, what should happen?

BRUCE MARKS: What should happen is that if we’re going to have to bail out the Bear Stearns, which we disagree—you shouldn’t use taxpayer money for that, but if that’s going to happen, there’s got to be a quid pro quo. You’ve got to work with—deal with the cause of the problem. And the cause of the problem is homeowners losing their homes with a defective mortgage. So you have to stop the resets, stop the interest rate increases, roll them back to the initial rate that people were qualified for, and put a moratorium on foreclosures, and then make sure that you can restructure those loans, meaning to permanently reduce the interest rate to a mortgage payment that the homeowners can afford.

And through NACA, we’re able to do thousands—we’ve done thousands of those loans for the borrowers. So what we say is, we look at what someone can afford, their net income, their expenses, determine what mortgage payment they can afford, and we have agreements with Countrywide and with Citigroup and others that they restructure the loans to make it affordable.

AMY GOODMAN: How have you been able to do this for thousands of homeowners?

BRUCE MARKS: Well, we did it through—we had to get their attention, so it’s through the advocacy. You know, I mean, we’ve got over 550,000 members around the country. NACA is a non-profit advocacy organization and mortgage broker. So if you come through NACA, you can get a mortgage that is the best deal out there. So it’s at no down payment and no closing cost and no fees, and it’s always one product. And today’s rate is five percent fixed, thirty-year fixed. So anybody can get that and go to our website, naca.com. But it’s through the advocacy.

Meaning threats, plain and simple.
Pogo, I don't care what else you post. You can put up a 2 page long pile of drival by a silicon valley girl but can't read a 15 second paragraph?
Last edited by LMM

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