The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age

    Was Barney Frank the one who REALLY caused the financial crisis of 2008?

    By Peter Schwartz on Sun, 06/19/2011 - 2:57pm |

    You tell me...

    Comments

    Not entirely. ACORN helped.


    by kgb999 on Sun, 06/19/2011 - 3:37pm

    I think that the regulatory divisions of government screwed up, I think the big banking instituions screwed up (out of lust for money), I think individual thieves screwed up, I think Fannie Mae and Freddie Mae screwed up totally and that these two 'non profits' are as bad as the big banking instituions, I think the repubs inhibited any chance of reform just as they are doing now, I think the lowly mortgage sales folks created fraud on unsuspecting new home owners, ....

    Congress as a whole has stunk the entire time.

    Thats enough today, I a watching golf...

     


    by Richard Day on Sun, 06/19/2011 - 3:38pm

    ...[Thats enough today, I a watching golf...]...

    Shouldn't that leave you with about 98% of your day to dedicate to blogging between the "action" moments? ;-p


    by kgb999 on Sun, 06/19/2011 - 3:45pm

    I couldn't sleep this morning, so I turned on the Golf Channel and had a great 2 hour Father's Day nap.


    by Donal on Sun, 06/19/2011 - 4:13pm

    You have to go back years to understand where the accusations and counter accusations come from. Here's a start:

    New White House Fire for Fannie, Freddie

    By David S. Hilzenrath
    Washington Post Staff Writer
    Friday, November 7, 2003; Page E03

    A top White House economist called yesterday for stronger regulation of Fannie Mae, Freddie Mac and other government-sponsored housing financiers, saying that "even a small mistake" in managing their risks "could have ripple effects throughout the financial system."

    N. Gregory Mankiw, chairman of the Council of Economic Advisers, told a group of state bank supervisors that the companies are so large and complex "that it is hard even for the companies themselves to keep track of their own situations." He was joining the administration's push for legislation that appears to have stalled in Congress.

    Rep. Barney Frank (D-Mass.), the ranking Democrat on the House Financial Services Committee, said the administration's position is driven by concerns about the financial safety and soundness of the companies "to the exclusion of concern about housing." Committee members were ready to support legislation that would give the Treasury Department oversight of Fannie and Freddie, as the administration has sought, Frank said, not power over the companies' housing activities, which are regulated by the Department of Housing and Urban Development.

    Mankiw said "the appearance of greater oversight without the reality would be a step in the wrong direction." [snip]

    source:

    www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3AFNM&it=y...

    by Lamont (not verified) on Sun, 06/19/2011 - 3:47pm

    The Big Question is does Barney Frank have teeth?  Has anyone ever seen him smile?

    Dean Baker rebutts Brooks. (who would not be such a sour-puss if his parents had gotten his teeth straightened; do you see a pattern here?)

    "There's a small problem in this story. The worst junk mortgages that inflated the housing bubble to extraordinary levels were not bought and securitized by Fannie and Freddie, they were securitized by Citigroup, Merrill Lynch, Goldman Sachs, Lehman and the other private investment banks. These investment banks gobbled up the worst subprime and Alt-A garbage that sleaze operations like Ameriquest and Countrywide pushed on homebuyers.

    The trillions of dollars that the geniuses at the private investment banks funneled into the housing market were the force that inflated the bubble to its 2006 peaks. Fannie and Freddie were followers in this story, jumping into the subprime and Alt-A market in 2005 to try to maintain market share. They were not the leaders.

    Just to be clear, Fannie and Freddie were serious bad actors. They are both huge companies that do nothing else but deal with housing. It is incredible that they did not recognize the housing bubble and take steps to try to deflate it, and protect themselves, before it grew to such dangerous levels."

    I really do think that Fannie and Freddie were a little too much Sacred Cows to Dems; this is  a more honest appraisal of their part, IMO.


    by we are stardust on Sun, 06/19/2011 - 4:23pm

    Why should Fannie and Freddie have recognized a free market at work was the wrong thing.?  A willing seller and a willing buyer.

    Individuals or couples figured they would be willing to pay for the homes. it was a long term investment. Apartments had no 3 or 4 bedrooms so a family could grow.

    No one believed the government would allow a financial meltdown and credit would dry up.

    Credit necessary to be able to refinance.

    The bankers wanted out and they were bailed out  and they screwed everyone else. 

    Would you have gotten out of a 30 year committment @ 5%, so you could take your Trillion and invest in hedgefunds on the short term.

    Who set the value of the homes? Then say they are overvalued, when as a willing seller and a willing buyer set the value. 

    JOBS JOBS JOBS would have prevented the financial failure in housing.

    With Jobs ,there would have been no housing defaults. How do you make your mortgage payments without  a job? 

        .      


    by Resistance on Sun, 06/19/2011 - 4:45pm

    Sorry but I can't understand the point(s) you are trying to make, but I see one place I might try a response.  Since the meltdown, jobs would definitely have helped prevent defaults.  Before then, many subprime and liars loans were a lot of the cause: selling to people who had no proof of income, selling to people who could afford prime rates, but instead got sub-prime with variable rate mortgages; chopping and selling the mortgages in MBS's that were rated AAA when they were dreck...

    ?



    by we are stardust on Sun, 06/19/2011 - 5:25pm

    The young people were told, don’t worry about the teaser rates, you'll be able to refinance.

    The people were led to believe housing would go up, because even the banks were betting on the come. The 20% down would be waived because at a later date it would be recaptured, as the property value would increase. The banks told us that, they wouldn’t lie, there are laws against that.

    BANKERS were telling the folks there would be an appreciable gain, it was the Major banks that offered HELOC's at 120% of value.

    Use your equity to buy that new Car, Equity available to stimulate the Economy.

    Wasn't life good in American under the leadership of Republicans and Bush's 2nd and last term in office? Maybe if the shite hadn’t prematurely hit the fan, the Bush clone McCain (the economy is sound McCain)  would have continued with this heated economy.

    As opposed now; to that Obama and high unemployment, because Obama isn’t allowed the freedom to spend as Republicans would have continued.    

    Well guess what? The financial savvy bankers lied, as opposed to the unknowing middle class with no more than a high school diploma who believed these EXPERTS.

    If the banks were willing to take the risk; who are we to say they don’t know what they're talking about. The bankers own appraisers were part of the conspiracy to defraud.

    Now when a Democrat takes office, guess what folks, the Republicans have found the new religion of fiscal restraint. There is no equity in housing, because Republicans and they're banker friends won't allow it.

    Home values were up under Republicans and they are down when the Democrats come to power?  Who sets this level of value? Who deprived the American worker the ability to stimulate their own economy?    

    Begin SNARK

    Home equity down, unemployment high, it won’t be long now, the people will be clamoring for Republicans

    You want Jobs or do you want the tree huggers to deprive you of them, as the Republicans have warned for years? Is that little river chub or spotted owl worth thousands of jobs?

    Do you really need the Grand Canyon to be left untouched by mining, or do you want jobs?

    The Republicans and their closest allies got the bailout money, so they could ride out the hard times.  For a brighter future ....for them

    See folks you need republicans, and in case you should ever forget it, maybe you should suffer a little more.  TILL YOU RETURN US TO POWER.....SUFFER  

    We should be in the streets with pitchforks, but Obama stood in the way


    by Resistance on Mon, 06/20/2011 - 5:26am

    A couple of things...

    As far as I can tell, there's no way to tell that you're in a bubble if, as you say, people keep buying and selling. Perhaps their level of debt to income is a strong tip off.

    I'm not sure jobs would have solved the problem. People had jobs while all of this was building up. If they'd kept their jobs, the balloon would have continued to inflate.

    I guess, at a certain point, prices go so high that the number of available buyers "has" to taper off and then everyone is left sitting in the last chair he picked.

    But it's possible that the only reason folks had their jobs was the economic activity generated by the bubble and the cash it gave consumers to spend. Minus that, the real employment situation-- fewer non-bubble-supported jobs--might have been much worse much earlier.


    by Peter Schwartz on Mon, 06/20/2011 - 8:28am

    If they'd kept their jobs, the balloon would have continued to inflate.

    That’s not true.

    Are you saying the answer to all bubbles is to eliminate jobs?  Hurting the people that’s the plan?

     the only reason folks had their jobs was the economic activity generated by the bubble and the cash it gave consumers to spend

    Instead of taking advantage of a highly stimulated economy that allowed consumers to spend money on personal goods and services and paying sales taxes to the State and the Federal government.

    The Fed knew it had a debt problem WHY didn’t they collect more taxes instead of cutting them?

    The Feds created the bubble?

    The idiots gave a tax cut and borrowed the money for three wars. I guess I don’t  see  the bubble as clearly as I see the stupidity of tax cuts.

    The bubble excuse is just that, an excuse to blame the poor working class.

    What bubble? 

    The banks own appraisers told us, what the homes were worth and had the credit market not dried up, because of Tax cuts and three wars; the Free market of willing seller and willing buyer would have been in affect, at least that’s what the free market people tell me when they want it to work for their ideal causes.  

    To extrapolate further, the American worker Labor commodity makes too much per hour the wages are too inflated, so we need to break the bubble, eliminate jobs. .


    by Resistance on Mon, 06/20/2011 - 10:09am

    I'm not saying "jobs" caused the bubble. I'm really saying it was a circle.

    When prices keep going up at that rate and rise because of leverage, then you have a bubble.

    Rising prices fueled a lot of borrowing which fueled a lot of economy activity (jobs) that disappeared once the bubble burst.

    Look at all those out of work construction workers.

    And Fed and others knew, or should have known, they had a bubble on their hands and could have taken steps to slow the rise in home prices--prices that were out of touch with many people's real (income-based) ability to pay for them.


    by Peter Schwartz on Mon, 06/20/2011 - 5:10pm

    If David Brooks said it was sunny, I'd check weather.com first.


    by Donal on Sun, 06/19/2011 - 4:48pm

    Brooks never thinks it's sunny.  ;o)


    by we are stardust on Sun, 06/19/2011 - 5:26pm

    He pisses into the wind and then he says it's raining


    by Resistance on Sun, 06/19/2011 - 11:15pm

    Thanks Stardust. Fannie and Freddie didn't cause the melt down. Baker describes it succinctly so I won't.

    It's perfectly legitimate to question F&F's role in general. . But the Fannie Mae accounting scandal ,uncovered in 2004  was no more responsible for the sub prime  fiasco than the Red Sox world championship that year. Anteriority does not imply causality. .   


    by Flavius on Sun, 06/19/2011 - 11:01pm

    Brooks said that Morgansen and Rosner were writing with suppressed rage about F And F; cripes; I put up an interview here in which they  mentioned them, but if they laid the bulk of their blame at those companies' feet, I blew right past it.  Keep thinking I'll take the time to watch again, but it hasn't made it to the top of my To-Do list so far.

    There are just so few Good Guys in this whole story, and recent attempts to prevent the next wave of it have pretty much failed.  The hyper-aware economists who see what's coming next seem to write from a place that forces them to call alerts out, but in more muted terms that sorta signal: 'WTH; no one is listening, no one learned a thing'.


    by we are stardust on Mon, 06/20/2011 - 8:28am

    Care to repost that interview for my benefit?

    Would be much obliged...


    by Peter Schwartz on Mon, 06/20/2011 - 8:34am

    Can't remember which one I posted (file under: if I had a memory I would be dangerous).  But here they are on Democracy Now!; the youtube kicks up more, one one Ratigan in which the host focuses on Fannie-Freddie, but you have to know who he is:

    "Fannie was a lead mover...prime mover...Jim Johnson taught the entire financial services how to co-opt..."  Heavier than the original I'd posted. I think.  And heavier on Barney. 

    The numbers Rosner gives about lower and lower downpayment percentages sound bad.  The refinancing story is a bit confusing to me; have to listen again.

    But one thing I'd add, plenty of economists saw the bubble; it was clear that housing prices and commercial properties just couldn't keep rising.  Maybe I ca find some, but it seems almost silly at this point.


    by we are stardust on Mon, 06/20/2011 - 9:58am

    Wiki has this list of some who saw it clearly, kinda simple math according to Baker (and Cho)  ;o) ;

    "Although many people claim that an economic bubble is difficult to identify except in hindsight, numerous economic and cultural factors led several economists (especially in late 2004 and early 2005) to argue that a housing bubble existed in the U.S.[17][25][37][38][39][40][41][42]Dean Baker identified the bubble in August 2002, thereafter repeatedly warning of its nature and depth, and the political reasons it was being ignored.[43][44] Prior to that, Robert Prechter wrote about it extensively as did Professor Shiller in his original publication of Irrational Exuberance in the year 2000.

    G. Edward Griffin predicted it in his 1994 book "The Creature from Jekyll Island."

    I think Nouriel Roubini ('Doctor Doom'), Nicholas Taleb (the Black Swan dude), and plenty of others around the world we don't hear about ('the Austrian economists' pop on google-search).  I think the point is that the people in power who were profiting so hugely didn't care to see the ramifications, sort of day to day refusal to imagine where it might end. 

     


    by we are stardust on Mon, 06/20/2011 - 10:16am

    Piecing stuff together...

    I think FF and FF were sacred cows BUT had over a few short years turned into pigs.

    So Democrats were no longer defending the FF and FF they imagined they were defending.

    (Don't worry, I'm not defending the Democrats, actually.)

    FFFF were supposed to pursue governmental/social ends: making housing affordable for everyone, especially lower or modest income people.

    But with deregulation, they became not much different from the large private enterprises with strong profit motives, exorbitantly paid CEOs, and shareholders. Yet they retained the imprimatur of their governmental provenance. And there was an implicit (or maybe explicit) guarantee that the government would back up their products.

    So you ended up with the worst of all possible worlds: a "private" enterprise with a government- signed blank check. Then again, as it turned out, Lloyd Blankfein had the almost the same blank check backing him up. Loved that move where they instantly became bank holding companies to get the FDIC insurance (I think that was it).

    FFFF would have been fine IF everyone hadn't caught the deregulation fever.

    There was an Australian investment banker who wrote a whole series of reasonably detailed (too detailed for me to fully understand) blogs at tpm purporting to show that FF was no insolvent. Wish I could remember his name.


    by Peter Schwartz on Mon, 06/20/2011 - 8:08am

    Another interesting article...

    http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR200806...


    by Peter Schwartz on Mon, 06/20/2011 - 9:06am