Economy • Elections '08 • International Issues • Presidential Race

MONDAY MUST READS – 3 a.m. Bailouts and the Supremes

September 29, 2008
by Celeste Fremon
27 Comments

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SO MANY MUST READS, SO LITTLE TIME….

The first, longest, most impenetrable and the most MUST READ is….


1. THE BAILOUT PLAN

Yes. I know. it’s over 100 pages long. But it has a name (the Emergency Economic Stabilization Act of 2008) and an acronym (EESA).

Actually the thing is littered with acronyms. For instance, our $700 billion now has its own chipper acronym: TARP (the Troubled Asset Relief Program).

(How over-caffeinated do you think the bailout negotiating committee had to be to have thought that one up?)

In any case… one can find much by skimming.

On p. 16, for example, we find there is, as promised, an oversight board to reign in Henry Paulson’s initial urge to name himself absolute monarch.

But, take a glance at who will be on that board.:

The Secretary of the Treasury, (AKA the selfsame guy who wanted to be King or Emperor or something involving a crown and complete and unfettered power)

Chairman of the Fed, Ben Bernanke (who was totally down for the King/Emperor thing)

The Head of the Federal Housing Finance Board (That would be James Lockhart. He did a great job with Freddy Mac and Fannie Mae, so certainly let’s include him)

The Chairman of the SEC (He’s the guy who McCain wanted to fire.)

And just to give the appearance that someone other than the usual suspects is involved…..The Secretary of HUD

(Why don’t I feel encouraged?)

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2. PAUL KRUGMAN & THE 3 A.M. CALL

In Paul Krugman’s Monday morning column (posted on the NY Times website on Sunday night) Krugman, who earlier called the bailout deal “cash for trash,” says this latest incarnation is worth passing (marginally, anyway) but says that it’s nothing close to a fix-it.

So which of the two candidates, Krugman wants to know, will we trust to take the 3 a.m. call when the next stage of the ongoing financial crisis hits? Here’s a clip:

I’m not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.

So what do we know about the readiness of the two men most likely to end up taking that call? Well, Barack Obama seems well informed and sensible about matters economic and financial. John McCain, on the other hand, scares me.

About Mr. Obama: it’s a shame that he didn’t show more leadership in the debate over the bailout bill, choosing instead to leave the issue in the hands of Congressional Democrats, especially Chris Dodd and Barney Frank. But both Mr. Obama and the Congressional Democrats are surrounded by very knowledgeable, clear-headed advisers, with experienced crisis managers like Paul Volcker and Robert Rubin always close at hand.

Then there’s the frightening Mr. McCain — more frightening now than he was a few weeks ago.

Read the rest.

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3. THE SUPREMES MAKE FOREIGN POLICY

Sunday’s New York Times Magazine has an excellent article (unlike the LA Times, which has no magazine anymore). It is by Harvard’s Noah Feldman, who asks us to evaluate the presidential candidates—not so much in terms of 3 a.m. phone calls—but in light of what kind of SCOTUS appointments they might make. (And he’s talking about way more than the fate of Roe v. Wade.)

According to Feldman, a few teensy-weensy things like our relationship with the rest of the world might hang in the balance.

Here’s one of his opening ‘graphs:

In the coming presidential election, every voter understands that there is a choice to be made between the foreign-policy visions of John McCain and Barack Obama. What is less obvious, but no less important, is that Supreme Court appointments have become a de facto part of American foreign policy. The court, like the State Department and the Pentagon, now makes decisions in cases that directly change and shape our relationship with the world. And as the justices decide these cases, they are doing as much as anyone to shape America’s fortunes in an age of global terror and economic turmoil.

For example, he says, in the case of Boumediene v. Bush, the Bush administration was confident that the court would decide that Guantánamo prisoners had no legal rights.

….. the Bush administration seemed to believe it could treat Guantánamo as a law-free zone. Unlike Iraq, which the administration conceded was a war zone in which the Geneva Conventions applied, Guantánamo was initially considered legally off the grid. It is often said by liberal critics that Bush’s anti-terror policies ignored the Constitution and international law. But this is a misleading oversimplification. What the choice of Guantánamo demonstrates, rather, is the profoundly legalistic way in which those policies were designed. Using the law itself, the lawyers in the Bush administration set out to make Guantánamo into a legal vacuum.

The court’s decision in Boumediene repudiated that attempt..

The full article makes for fascinating and important reading.

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4. THE PERILS OF TRUTHINESS

One more. This one is from an Op Ed in today’s LA Times in which Gregory Rodriquez writes that conservatives are “playing a dangerous game in attacking the media for bias…”

He points in particular to the Republicans’ recent volleys lobbed at the New York Times when the Times reported the entirely true fact that McCain’s campaign manager, Rick Davis, had made a pile of money heading up a group that advocated for Fannie Mae and Freddie Mac.

“…What irks me, and should concern us all, is not the everyday disregard for this or that particular truth but the very assault on the idea that there is such a thing as truth at all.

Read on.

27 Comments

  • Gee what a shocker, Gregory Rodriguez is usually such a fair weather reporter never sticking his neck out too far and trying so hard to play it safe.
    Well good for him and it’s about time he and other “reporters” put aside their fear of not being mainstream enough as during these conservative Cheney/Bush years.

  • You’re really not interested in the truth, but here’s a little video background on our economic problem: Burning Down The House: What Caused Our Economic Crisis?

    But, I guess that you believed Speaker Pelosi when she said the Democrats had no responsiblity for it. So, just trust Obama and the Democrats for a solution.

    Obama wouldn’t even stop his presidential job interviews to go Washington, D.C. just to vote present. But, like Diana Ross, he sang, If you need me, call me. …just call my name. I’ll be there in a hurry. on that you can depend and never worry. Right. And, don’t call him at three in the morning, either.

    Don’t forget, Obama and Democratic solutions will finally come back around to higher taxes. What a surprise.

    I’m glad that there are so many financial whizzes on this board who know what’s wrong in the market and how to fix it. Why aren’t you running the Treasury and SEC?

    On the courts, wasn’t it the Democrats’ and ACLU’s session-snoozing Supreme Court Justice Ruth Bader Ginsberg who admits applying foreign laws to interpret our Constitution? How could McCain do worse than that? In Obama’s view, Ginsberg would be considered too conservative.

    Oh, and on media bias, I know that you guys have been in the juice too long when you join with those who defend The NY Times as not being biased.

    What this country needs is to have Obama, Reid, and Pelosi run our nation for a few years to shake up the citizens enough to understand that change can be bad if made in the wrong direction.

    I’m going back into commenting retirement. You guys are a waste.

  • “I’m going back into commenting retirement.”

    Thank god, because that video was a piece of crap by someone wildly ill-informed.

    The CRA argument is just total crap – but then I understand white people wanting to blame their problems on black people and other minorities. This is pretty standard issue horseshit from right-wing crybabies. The most obvious refutation of that is a look at where the foreclosure crisis is greatest – it ain’t Compton. Try Las Vegas and similiar over-built “exurbs” that have nothing substantial to do with the CRA. And CRA loans were more solid, less expensive and have a lower foreclosure rate than others. If anything, CRA had a braking effect on the worst of the subprime abuses:

    http://www.reuters.com/article/pressRelease/idUS135259+07-Jan-2008+BW20080107

    Further, while Fanniie and Freddie are far from blameless in this mess, they are far from having driven the subprime lending schemes and became actors after the stage was set. For a not-too-technical but informative – as opposed to blindly demagogic – discussion of this aspect, here:

    http://economistsview.typepad.com/economistsview/2008/09/it-wasnt-fannie.html

    Watch that hack video, read the accompanying tirade, check out the data I’ve provided and then make a judgement as to who/what is “a waste” or “in the juice.”

  • DQ, I was pleasantly surprised by the Rodriguez piece too.

    Woody, um….Obama did go to D.C.—at exactly the same moment and for virtually the same amount of time, as did McCain.

    As for retirement, I hope you stay out as you’re one of the people whom the WLA readers most enjoy (you, too, reg).

    Hey, you have a silent fan club. (I’m not kidding.)

    By the way, what would you have done to solve the crisis? Are you with the repub minority? The original 3-page, make-me-king Paulson plan? What?

    Not that they necessarily agree with you. But they enjoy reading you.

  • Herbert Hoover (R), the 31st President of the United States, once said, “The business of America is business.”

    The Great Depression began during the first year of Hoover’s presidency, 1929.

  • McCain’s stunning sacrifice in “suspending” his campaign – and the “leadership” he provided certainly did galvanize the core of his party to resolve this crisis. The irony after all of the grandstanding, of course, is that he did little in meetings other than to wave and nod, and according to his campaign he spent most of whatever time he dedicated to the crisis on the phone from his home. I’d like to know how many times McCain has spoken to Paulson and the congressional leadership over the past week and how many times Obama spoke with them.

    The Original Maverwreck!

  • Woody, you’re dead wrong about the CRA:

    But CRA has always had critics, and they now suggest that the law went too far in encouraging banks to lend in struggling communities. Rhetoric aside, the argument turns on a simple question: In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money?

    The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation’s Ellen Seidman (and by Harvard’s Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards. Yet sub-prime lending continued, and even intensified — at the very time when activity under CRA had slowed and the law had weakened.

    Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn’t even apply to most of the loans that are behind it. As the University of Michigan’s Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

    Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."

    Yellen is hardly alone in concluding that the real problems came from the institutions beyond the reach of CRA. One of the only regulators who long ago saw the current crisis coming was the late Ned Gramlich, a former Fed governor. While Alan Greenspan was cheering the sub-prime boom, Gramlich warned of its risks and unsuccessfully pushed for greater supervision of bank affiliates. But Gramlich praised CRA, saying last year, "banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business."

    To sum up:

    1.) More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision.

    2.) 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves.

    3.) The President of the San Francisco Federal Reserve Bank makes the following comment: "There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general. I believe it is very important to make a distinction between the two. Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term."

    4.)A former Fed Governor made the comment that banks have found the default rates for loans to fulfill their CRA obligations to be "pleasantly low."

    I realize that this has become a sacred talking point among the right, but it’s not borne out by the facts.

  • You guys can’t distinguish between political pressure supporting the CRA by “neighborhood organizers” like ACORN and political support for the CRA by political appointees versus impartial and objective economic truths. Keep dreaming and looking up rebuttals that mean nothing outside of politics.

    Celeste, I don’t know where you got your figures for time spent by Obama in Washington, but he sure didn’t get there early and spend any time leading. It doesn’t do much good if your time card shows that you got to work a week late and then left early for a job interview.

    Obama hemmed and hawed and made nice sounding non-committal speeches and let others do the dirty work and carry the bags. I had my fill of Bill Cliinton watching which way everyone was running so that he could jump in front of them and say that he was leading. Obama is even worse, because he sitll won’t take a firm stand even when he sees which way things are going, just so that he can back-track. Voting present is how he leads.

  • Quite the contrary, Woody,(who seems to be coming out of retirement with far greater frequency than mushrooms out of cow flop), I’ve supplied you with objective economic truth. You’ve chosen to ignore it. More than half of the subprime loans were made by independent mortgage companies, which are free of strictures from the CRA. Deal with that fact.

  • Woody – either address the facts about CRA and Fannie/Freddie actual role in these markets or shut the fuck up. What give you the right to simply assert total bullshit out of sheer arrogance and insult ? You’re an economic illiterate – at best.

  • R&R, the CRA accounted for so much of the mortgage failures, but you want to ignore those for the ones that weren’t. You overlook the activism of neighborhood organizers and their political effects, when lenders were blackmailed with threats of disruptions–ala a Jesse Jackson style shakedown.

    Until then, banks had been making loans to qualified people, as they wanted. The left-wing threats weren’t on the books, but they were there and in the form of boycotts and investigations and lawsuits for racial discrimination.

    Maybe you will enjoy this article from The NY Times.

    Fannie Mae Eases Credit To Aid Mortgage Lending – Sept. 30, 1999

    >blockquote>…Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people.

    “From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

    The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

    More on the next comment….

  • Who’s the economic illiterate, jerk?

    The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities – Winter 2000

    The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks.

    Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.

    The Act, which Jimmy Carter signed in 1977, grew out of the complaint that urban banks were “redlining” inner-city neighborhoods, refusing to lend to their residents while using their deposits to finance suburban expansion. CRA decreed that banks have “an affirmative obligation” to meet the credit needs of the communities in which they are chartered, and that federal banking regulators should assess how well they do that when considering their requests to merge or to open branches. Implicit in the bill’s rationale was a belief that CRA was needed to counter racial discrimination in lending,

    The Clinton administration’s get-tough regulatory regime mattered so crucially because bank deregulation had set off a wave of mega-mergers, including the acquisition of the Bank of America by NationsBank, BankBoston by Fleet Financial, and Bankers Trust by Deutsche Bank. Regulatory approval of such mergers depended, in part, on positive CRA ratings.

    “To avoid the possibility of a denied or delayed application,” advises the NCRC in its deadpan tone, “lending institutions have an incentive to make formal agreements with community organizations.” By intervening—even just threatening to intervene—in the CRA review process, left-wing nonprofit groups have been able to gain control over eye-popping pools of bank capital, which they in turn parcel out to individual low-income mortgage seekers. A radical group called ACORN Housing has a $760 million commitment from the Bank of New York;

    In addition to providing the nonprofits with mortgage money to disburse, CRA allows those organizations to collect a fee from the banks for their services in marketing the loans. The Senate Banking Committee has estimated that, as a result of CRA, $9.5 billion so far has gone to pay for services and salaries of the nonprofit groups involved.

    Even without a no-down-payment policy, the pressure on banks to make CRA-related loans may be leading to foreclosures. Though bankers generally cheerlead for CRA out of fear of being branded racists if they do not, the CEO of one midsize bank grumbles that 20 percent of his institution’s CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure.

    Looking into the future gives further cause for concern: “The bulk of these loans,” notes a Federal Reserve economist, “have been made during a period in which we have not experienced an economic downturn.” The Neighborhood Assistance Corporation of America’s own success stories make you wonder how much CRA-related carnage will result when the economy cools.

  • Lastly….

    How the Democrats Created the Financial Crisis: Kevin Hassett – Sep 29, 2008

    Greenspan’s Warning – The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”

    What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee.

    If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

    But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.

    That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: “It is a classic case of socializing the risk while privatizing the profit.

    But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

    Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

    Oh, and there is one little footnote to the story that’s worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.

    Maybe you guys need lessons in economics and ethics.

    Now, quit bothering me with your stupidity.

  • Obamas donations came from the employees. John McCain received $169,000 from officers, board members and lobbyists for Fannie Mae. Obama only received $16,000 from the big shots.

  • Now, quit bothering me with your stupidity

    Now there’s some serious projection. If we’re all so stupid, why do you come here? For punishment? Self-abuse? It certainly hasn’t been any factual refutation of anything I’ve put up here.

    Woody, I provided objective economic evidence. You’ve provided opinion. I’ll let others decide who is more credible.

  • Randy, your response shows that you truly are a fool. Historical facts are not opinions, and your data only shows that statistics don’t lie but liars use statistics. Really, you’re not worth my time on this.

  • Just for the record, Woody, in all the years you and I have tangled here, you havet yet to refute with any actual evidence anything that I have provided to factually support my arguments. Not once.

    Your intellectual rigor amounts to “you’re pathetic” or “those are arguments made by bureaucrats.” Zero evidence on your part. Z-E-R-O.

  • I agree, Randy. But its obvious that the truth about McCain and Caribou Barbie is driving Conservatives to worse extremes of spinning. McMaverick’s decision to pick Palin now seems indefensible to his own party. Tonight CNN went to the town in Alaska from where you really can see Russia 2 miles across the ocean. The mayor of the town, population 140, said the view didn’t qualify him to be VP either. So there was the funny part but there was the poverty 40 percent of the tribe endures. Palin never went, so she hasn’t seen Russia from Alaska, and she hasn’t seen her own people throwing their garbage in the ocean. Thats the Conservatives. They resent paying for simple services, traffic lights, roads to Somewhere, and trash removal, so there having a meltdown about the dangers of losing and having to pay pay for, um, healthcare and schools. Thats the root of the discontent. They had 8 years to ruin this country with war and greed. It was not enough for them but now is payback time.

  • I could not remember the name of the remote Alaska town but CNN said you need a helicopter to get there. The tribe does not have tv and some residents did not know who Palin is. I recommend watching it.

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