Bailout plan NOT pwned!

[Nieztchean Uber-Amoeba]

This reminds me of another Political Animal allegory, actually:

The Story of Mouseland
As told by Tommy Douglas in 1944

It's the story of a place called Mouseland. Mouseland was a place where all the little mice lived and played, were born and died. And they lived much the same as you and I do.

They even had a Parliament. And every four years they had an election. Used to walk to the polls and cast their ballots. Some of them even got a ride to the polls. And got a ride for the next four years afterwards too. Just like you and me. And every time on election day all the little mice used to go to the ballot box and they used to elect a government. A government made up of big, fat, black cats.

Now if you think it strange that mice should elect a government made up of cats, you just look at the history of Canada for last 90 years and maybe you'll see that they weren't any stupider than we are.

Now I'm not saying anything against the cats. They were nice fellows. They conducted their government with dignity. They passed good laws--that is, laws that were good for cats. But the laws that were good for cats weren't very good for mice. One of the laws said that mouseholes had to be big enough so a cat could get his paw in. Another law said that mice could only travel at certain speeds--so that a cat could get his breakfast without too much effort.

All the laws were good laws. For cats. But, oh, they were hard on the mice. And life was getting harder and harder. And when the mice couldn't put up with it any more, they decided something had to be done about it. So they went en masse to the polls. They voted the black cats out. They put in the white cats.

Now the white cats had put up a terrific campaign. They said: "All that Mouseland needs is more vision." They said:"The trouble with Mouseland is those round mouseholes we got. If you put us in we'll establish square mouseholes." And they did. And the square mouseholes were twice as big as the round mouseholes, and now the cat could get both his paws in. And life was tougher than ever.

And when they couldn't take that anymore, they voted the white cats out and put the black ones in again. Then they went back to the white cats. Then to the black cats. They even tried half black cats and half white cats. And they called that coalition. They even got one government made up of cats with spots on them: they were cats that tried to make a noise like a mouse but ate like a cat.

You see, my friends, the trouble wasn't with the colour of the cat. The trouble was that they were cats. And because they were cats, they naturally looked after cats instead of mice.

Presently there came along one little mouse who had an idea. My friends, watch out for the little fellow with an idea. And he said to the other mice, "Look fellows, why do we keep on electing a government made up of cats? Why don't we elect a government made up of mice?" "Oh," they said, "he's a Bolshevik. Lock him up!" So they put him in jail.

But I want to remind you: that you can lock up a mouse or a man but you can't lock up an idea.

[Executor32]

Well, thankfully my own rep (Manzullo) didn't vote for this travesty, either this or the first time.

[Admiral Valdemar]

I'm going to be using that Mouseland parable a lot. Thanks, Amoeba.

[Phantasee]

Amoeba, do you have a link or a publication that I can cite when I use that? Because you know I'm going to be using that...

[Illuminatus Primus]

How is it the Republicans have managed to twist this into the fault of Clinton and the DNC for fighting red-lining and making those poor poor banks loan to those evil blacks? Can anyone link me to discussions or evidence to countermand this GOP/right-wing/laissez-faire smear that its just evil social intervention by the Democrats and Freddie/Fannie protection by them that caused the entire crisis?

[Covenant]

The problem is, our version of Mouseland is one where mice can become Cats anytime they want to.

[CaptainChewbacca]

How is it the Republicans have managed to twist this into the fault of Clinton and the DNC for fighting red-lining and making those poor poor banks loan to those evil blacks? Can anyone link me to discussions or evidence to countermand this GOP/right-wing/laissez-faire smear that its just evil social intervention by the Democrats and Freddie/Fannie protection by them that caused the entire crisis?

Sarah Palin went into it a bit at the VP debate. The line is that McCain wanted stronger regularion back in 2004 or 2005, and predicted that lending to lower income families would lead to this. I havn't researched it yet.

[Terralthra]

How is it the Republicans have managed to twist this into the fault of Clinton and the DNC for fighting red-lining and making those poor poor banks loan to those evil blacks? Can anyone link me to discussions or evidence to countermand this GOP/right-wing/laissez-faire smear that its just evil social intervention by the Democrats and Freddie/Fannie protection by them that caused the entire crisis?

Sarah Palin went into it a bit at the VP debate. The line is that McCain wanted stronger regularion back in 2004 or 2005, and predicted that lending to lower income families would lead to this. I havn't researched it yet.

FactCheck.org has a nice piece with a few paragraphs about it.

The McCain-Palin campaign fired back with an ad laying blame on Democrats and Obama. Titled "Rein," it highlights McCain's 2006 attempt to "rein in Fannie and Freddie." The ad accurately quotes the Washington Post as saying "Washington failed to rein in" the two government-sponsored entities, the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), both of which ran into trouble by underwriting too many risky home mortgages to buyers who have been unable to repay them. The ad then blames Democrats for blocking McCain's reforms. As evidence, it even offers a snippet of an interview in which former President Clinton agrees that "the responsibility that the Democrats have" might lie in resisting his own efforts to "tighten up a little on Fannie Mae and Freddie Mac." We're then told that the crisis "didn't have to happen."

It's true that key Democrats opposed the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have established a single, independent regulatory body with jurisdiction over Fannie and Freddie – a move that the Government Accountability Office had recommended in a 2004 report. Current House Banking Committee chairman Rep. Barney Frank of Massachusetts opposed legislation to reorganize oversight in 2000 (when Clinton was still president), 2003 and 2004, saying of the 2000 legislation that concern about Fannie and Freddie was "overblown." Just last summer, Senate Banking Committee chairman Chris Dodd called a Bush proposal for an independent agency to regulate the two entities "ill-advised."

But saying that Democrats killed the 2005 bill "while Mr. Obama was notably silent" oversimplifies things considerably. The bill made it out of committee in the Senate but was never brought up for consideration. At that time, Republicans had a majority in the Senate and controlled the agenda. Democrats never got the chance to vote against it or to mount a filibuster to block it.

By the time McCain signed on to the legislation, it was too late to prevent the crisis anyway. McCain added his name on May 25, 2006, when the housing bubble had already nearly peaked. Standard & Poor's Case-Schiller Home Price Index, which measures residential housing prices in 20 metropolitan regions and then constructs a composite index for the entire United States, shows that housing prices began falling in July 2006, barely two months later.

[phongn]

How is it the Republicans have managed to twist this into the fault of Clinton and the DNC for fighting red-lining and making those poor poor banks loan to those evil blacks? Can anyone link me to discussions or evidence to countermand this GOP/right-wing/laissez-faire smear that its just evil social intervention by the Democrats and Freddie/Fannie protection by them that caused the entire crisis?

To an extent, the Clinton Administration did increase pressure on Fannie Mae to reduce its credit standards (Source: The Hill). However, that's a rather small portion of the subprime mess, AFAICT. As the Economist notes (and FactCheck quotes), this is a product of "layered irresponsibility."

[cosmicalstorm]

A cautionary tale from the future
Sep 25th 2008
From The Economist print edition


This newspaper story has just come to light after falling through a gap in the space-time continuum

September 26, 2021

FINANCIAL authorities in America and Europe took sweeping powers yesterday to avert a financial crisis by imposing restrictions on markets. In their sights are a peculiar brand of speculators known as “long-buyers” who buy assets not to live off the income they generate but to profit from rising prices.

“Some of these people buy homes that they have no intention of living in,” said Lord Poohbah, chairman of Britain’s Financial Services Authority, “and others buy shares they plan to own for just days or weeks, rather than the prudent time period of several years.” Their actions force prices up above fundamental valuation levels, critics say, causing some British tabloid newspapers to call leading fund managers “greedy pigs”.

Particular criticism has been reserved for people dubbed “naked long-buyers”, those who try to buy homes without putting up a deposit. “Such people are in effect renters with a free call option on rising house prices,” said one financial analyst, “but they expect to be bailed out by taxpayers when house prices fall.”

Not only is this a clear case of moral hazard (the encouragement of irresponsible risk-taking) but their activities drive up house prices, putting them beyond the reach of hard-working families who have diligently saved up to put down a deposit. Also in the speculative category are “buy-to-letters” who buy a string of houses with borrowed money in the hope of making outsize gains.

In America rising house prices have pushed up the level of inflation in recent years. The Labour Department was forced to include a proper measure of house prices in the inflation data by the Alan Greenspan memorial act, passed by Congress in 2020.

In the stockmarket long-buyers often buy shares after inadequate analysis of a company’s balance-sheet because they believe a “greater fool” will purchase them at a higher price. This happened in the so-called dotcom bubble of the late 1990s, leading to massive losses that destabilised the economy and eventually prompted the Federal Reserve to cut interest rates.

In addition, naive long-buyers pushed up the shares of financial companies, such as banks, in the mid-2000s, prompting the banks to indulge in irresponsible lending that led to the housing bust of 2007-10, an event that awakened fears of a repeat of the 1930s Depression.

“We cannot let the long-buyers destabilise the markets again,” said the American treasury secretary. He accordingly took powers to limit the scope of future price rises, including the creation of a so-called “Revolution Trust Corporation” that will issue a trillion dollars worth of shares in financial companies that will subsequently be sold in the market. The proceeds of the sale will be used to pay down the national debt, swollen by the costs of previous bail-outs of the financial system.

The plan to cap house prices will involve the introduction of capital-gains tax on housing profits. “If taxpayers have to subsidise house-price losses, it is only fair they should share in the gains,” the secretary said. Homeowners may protest at the details of the plan but the sweeping powers taken to govern the financial system by the former Hank Paulson (now King Henry I of America) mean there is little they can do about it.

Industry analysts said that some of the damage done by long-buyers might have been prevented had a now defunct practice called “short-selling” been permitted. By speculating on falling prices, short-sellers could in theory prevent bubbles from being formed. However, their scope to trade was always limited by regulations and the tactic was killed off during the crisis year of 2008. “It drove us out of business,” recalled George Soros, a former hedge-fund manager, speaking in Central Park yesterday, before adding, “Do you want some ketchup with that?”

Before that crisis, the standard rubric on financial products said “Warning: share prices may go down as well as up.” Afterwards, the clause “but not if the authorities have anything to do with it” was added at the end. The result was the decade-long boom in house and share prices that prompted the authorities to step in yesterday.

Asked if he was blaming speculators for the inadequacy of American monetary policy, the treasury secretary abruptly ended the news conference.

[Covenant]

Also, the effect of unqualified buyers getting into the housing market is very small--you might as well blame real estate investors for building too many houses, or the McMansions, or any other number of irrelevent little factors. Even if every one of those people who got a house failed to pay it (which they didn't) that would have been handled by the normal practices if they hadn't been sold up the river and bundled into other packages as part of some sort of massive investment schenanigan which allowed all these layers to pancake their way down and take everyone with them.

This was aided by the efforts to make home ownership more widely available, but wasn't caused by it. It's not even like banks were the ones who really kicked it off either, it was sub-prime lending agencies, who often charged more for the sub-prime loans and borrowed their money from banks. What the legislation did to make it easier to buy and sell mortgages never forced banks to delve so deeply into the predatory and shortsighted practices of the abusive adjustable rate mortgages that they sold, and in many ways benefitted greatly from because the longterm profits were higher. Higher because they're more expensive. So they sold more expensive, less affordable loans to people with lousier credit ratings and less available income. Why would a reasonable bank ever do this? Because these weren't reasonable banks, they were greedy sons of bitches. And they liked to target people who they didn't think knew any better, like minorities or women.

A significantly higher proportion of women are steered into the sub-prime loan market. This market provides loans to consumers who are unable to meet the approval standards of the prime lenders, often charging higher rates and fees to compensate for the higher risk they assume when making these loans. However, large numbers of women who were well qualified for prime level lending, according to data on credit scores and financial history, were sold more expensive sub-prime products instead. This disparity is common to all home loans, whether for home purchase, refinancing, or home improvements.

Furthermore, back to my original point, these were lumped together into portfolios and sold as securities to foreign investors and anyone else who would take them, and that gets into extemely complicated economics math that I barely understand, let alone feel confident repeating. It got so lucrative that other nations like Ireland quickly began creating sub-prime lending agencies. It's important though because, due to the cynical way they were sold originally to people who they knew couldn't actually afford them, they were taking extremely high-risk, high-failure probability investments and bundling them with and as high-value, longterm, backloaded investments to other people, and pulling the capital in to themselves.

If they had sold lower-cost loans, such as lower value fixed rate loans, they would have gotten a more consistant return on their investments, a lower rate of foreclosure (if there was any real increase at all), and the system would have been able to adjust itself much more easily, and this may never have popped--it would have just fizzled out. Home prices wouldn't have skyrocketed, the homes being built wouldn't have been so dramatically more expensive than before, and there wouldn't have been this rush to sell as many mortgages as possible, with all the attendant real estate speculating, flipping, teardowns, and mortgage foolery that accompanied the dramatic and ridiculous bubble of the housing industry. Democrats merely tipped it in that direction by asking lenders to lower their credit standards somewhat, but it was the lenders, banks, and Wall Street that decided to throw good business out the window and choose a short-sighted business model instead of anything resembling sound financial responsibility. You can't blame the individual buyer for that, especially when the lenders were peddling snakeoil loans to anyone they could find and then selling them as high-rated securities. There needs to be business accountability. They can't simply point at the people and say "B-but they were dumb enough to let us do it! It's not our fault! We can't help ourselves."

[Nieztchean Uber-Amoeba]

Just google 'Mouseland' if you want it, the first link is to the Saskatchewan New Democratic Party's version. It was a pretty famous speech around my neck of the woods.