I think that this is a nationwide fire, that has jumped to a lot of other nations, if not all of them.

AVOID MORAL HAZARD!

Pardon me, here, Arneoker, while I absolutely choke on the peals and gales of laughter which are erupting from me right now as I read your statement above here about AVOIDING MORAL HAZARD ....

WHY BOTHER, Arneoker?

After you have made it incandescently clear that you are going to BAIL OUT eveybody under the sun with GOVERNMENT MONEY, no matter what they have done, how can you avoid moral hazard now?

What Congress is doing by its actions with all of these BAIL OUTS is PROVIDING PERVERSE INCENTIVES TO BEHAVE EVEN MORE BADLY IN THE FUTURE IF YOU ARE A WALL STREET BANKER OR A CORPORATE EXECUTIVE or some two-for-a-nickle hustler on the block back home who sees SCAMMING people as a good way to make a living without having to break a sweat ...

Pardon me, Arneoker, and no offense intended at you, but that is one of the MOST ABSOLUTE STUPID SENTIMENTS to have come out of Washington, D.C. since they reclaimed the place from the pestilential swamp it was before it was made into this nation's CAPITAL ....

Where the CRAVEN CONGRESS sits and BAILS OUT LOOTERS ......

The thought that they are trying to avoid moral hazard - when it is they in Washington who are promoting fiscal recklessness in America with a GOVERNMENT GUARANTEE that when you *** up, the American taxpayers will be SHACKLED as ECONOMIC SLAVES to BAIL you out ..........

And so ...

No disagreement here, Arneoker ...

None at all ....

But I am already poor, Arneoker ....

So how does this fire of tomhye's affect me?

Should I be getting all wigged out in here, or hysterical, because there has been a foreclosure in tomhye's upscale neighborhood?

And so ...

And you are pretty much rational most of the time, Arneoker ....

From what I have seen, anyway ....

Not to speak for anybody else but myself, I go with your approach here ....

I don't think we should be limited in our thinking in here ...

And I have got to finish defining LOOTING ....

And so ...

This is what makes me so proud of our legislative process...

And by the way, Arneoker ...

This thing of CORPORATE LOOTING is not new ....

It goes back at least to the 80's and these buy-out specialists who would get leveraged loans to buy up performing companies such as GardenWay in Troy, New York, and then they would LOOT them and sell the husks after ruining the businesses ...

We are just at the other end of the wave, is all ....

This is where the rubber finally meets the road ...

The chickens have now come home to roost ....

And the past of GREEDY America has caught up with it to become its present and future ....

And so ...

Thanks for joining in, Frenchy ...

Okay, Arneoker ....

What do you think?

I'm trying to stay up with you here, Arneoker, but I'm on a limited time schedule ....

You ask responsible questions in here ....

I treat them that way when I try and answer them .....

Not to duck this question but have you ever been the subject of an FBI Hobbs Act investigation into white collar crime?

Have you ever been sucked up into one of those investigations?

I have, myself ....

It is an interesting experience ....

You get a good look from within at just how much DIRT the government is able to sweep under the rug to PROTECT malfeasors ....

What is the QUID PRO QUO, do you think, Arneoker?

CUI BONO?

And so ...

Ben Bernanke addressed a financial conference today and told us all to ENDEAVOR TO PERSEVERE our way through this FISCAL CRISIS ....

God, don't that just make you so proud to be an American, knowing that we can go to sleep at night with a dedicated public servant like Ben Bernanke watching over our finances for us while we sleep ....

Makes me feel all squishy inside and warm and fuzzy, too ....

I think I'd like to teach the world to sing in three-part harmony, as a result of hearing Ben Bernanke's encouraging words today ...

And so ...

Allen L Roland: *No Bailout Oversight: Bush Stalls Inspector General Selection It appears that one unknown Republican Senator, under the direction of George W Bush, is blocking the appointment of Bailout Special Inspector General Neil Barofsky while Paulson loots the treasury without adequate oversight: Allen L Roland

It takes an iterative approach in here to answer Arneoker's most serious question because the definition of LOOT itself is dependent upon the definition of the words PLUNDER and PILLAGE ....

And that is not to say that the definition of LOOT does not get us into the ballpark ...

I believe it does, myself ...

BUT ....

That is because I have some background and HISTORY with the subject to go on ...

Without that, for the first-time viewer, anyway, the picture might not be so clear ...

So let us then carry this definition a bit further by defining PLUNDER, to wit:

PLUNDER: to ROB of goods or property by open violence, as in war;

Pillage;

Loot;

To despoil by robbery or fraud;

To take as plunder;

Steal;

That which is taken by plundering;

The act of plundering or robbing;

To remove houshold goods ....

I'm not quite done, Arneoker ....

But I am getting there ....

Have to run now ....

REALITY calls ....

But with the grace of God, and the creek don't rise, and the bridge don't get washed out, which assumes the dam didn't break, I'll be back ...

And so ....

Okay, if it is all or nothing, let's just forget about moral hazard, and get our economy moving.

Did you hear that the unemployment rate is up to 6.8%? Not too bad news, especially if you are not one of the unemployed or face any serious prosepects of being added to their number.

BTW, I still don't think it is all or nothing myself. But draw your own conclusions, I know what I mean and I know that I have been consistent. But I also know that tradeoffs almost always have to be made when you have a problem this big. This is something that I hope my kids understand well by the time they become adults.

I looked at your AP article (thank you) and the Common Dreams article, so I am a bit more informed on that angle too, if I am not clear on the full $7 trillion.

You don't have to get all wigged out about that, or about mass foreclosures in working-class neighborhoods in Cleveland either. If those people are nothing to you then they're nothing to you. Excuse me if I for one give a cola de rata.

Some people appear to love seeing their words in print. And this guy does seem to make a coherent explanation for the crash after the completion of the transcontinental railroad.

You see no relationship between the economics on Wall Street and the economics on Main Street?

Do you understand that the economics of credit is essential to the functioning of our economy and tight credit means that the ability to spur economic growth is made that much more difficult -- without economic growth -- there is a domino effect throughout industry...in which case

During the Great Depression, the federal government engaged in deficit spending of billions of dollars and that helped spur the economy forward --- and the $5 billion stiimulus plan for the 1937 recession reduced the unemployment significantly...

Livyjr -- first of all -- I just do not see that the rescue plan constitutes looting -- looting is an illegal act -- well Congress provided the funds to the banks -- if the banks are not using the money appropriately it is up to the Department of the Treasury to promulgate regulations for the use of such money.

What is your alternative to this financial crisis...let's talk about concrete proposals and not just tear down the present plan...

Livyjr --- I hate to say it but your commentary is starting to sound like a broken record -- regarding the supposed craven Congress engaged in uncosntitutional actions...

I do not believe that you have been able to demonstrate that any of the actions taken so far by the Congress with regard to the rescue are unconstitutional, but I would be willing to listen...

Congress acted within their express authoity in appropriating the money...that is the bottom line...nothing unconstituitonal was done...

Let us do a thought experiment.

What if no looting had been involved. What if no violations of the law, or of the Constitution were involved. But let us say that our Government and leaders of these big financial firms made very bad decisions that brought on the current economic crisis.

Would things then be okay? Nothing to worry about? An unemployment rate of 6.8% and likely having a ways to go? Heck, that's life!

"A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
'Tis like the writing on the wall. "

THE RUN UPON THE BANKERS
Jonathan Swift

The bold encroachers on the deep
Gain by degrees huge tracts of land,
Till Neptune, with one general sweep,
Turns all again to barren strand.

The multitude's capricious pranks
Are said to represent the seas,
Breaking the bankers and the banks,
Resume their own whene'er they please.

Money, the life-blood of the nation,
Corrupts and stagnates in the veins,
Unless a proper circulation
Its motion and its heat maintains.

Because 'tis lordly not to pay,
Quakers and aldermen in state,
Like peers, have levees every day
Of duns attending at their gate.

We want our money on the nail;
The banker's ruin'd if he pays:
They seem to act an ancient tale;
The birds are met to strip the jays.

"Riches," the wisest monarch sings,
"Make pinions for themselves to fly;" [1]
They fly like bats on parchment wings,
And geese their silver plumes supply.

No money left for squandering heirs!
Bills turn the lenders into debtors:
The wish of Nero now is theirs, [2]
"That they had never known their letters.

"Conceive the works of midnight hags,
Tormenting fools behind their backs:
Thus bankers, o'er their bills and bags,
Sit squeezing images of wax.

Conceive the whole enchantment broke;
The witches left in open air,
With power no more than other folk,
Exposed with all their magic ware.

So powerful are a banker's bills,
Where creditors demand their due;
They break up counters, doors, and tills,
And leave the empty chests in view.

Thus when an earthquake lets in light
Upon the god of gold and hell,
Unable to endure the sight,
He hides within his darkest cell.

As when a conjurer takes a lease
From Satan for a term of years,
The tenant's in a dismal case,
Whene'er the bloody bond appears.

A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
'Tis like the writing on the wall. [3]

How will the caitiff wretch be scared,
When first he finds himself awake
At the last trumpet, unprepared,
And all his grand account to make!

For in that universal call,
Few bankers will to heaven be mounters;
They'll cry, "Ye shops, upon us fall!
Conceal and cover us, ye counters!

"When other hands the scales shall hold,
And they, in men's and angels' sight
Produced with all their bills and gold,
"Weigh'd in the balance and found light!"

1. Proverbs 23:5

2. Nero, signing the death sentence of a condemned criminal, exclaimed:
"Quam vellem nescire litteras!" ("How I wish I'd never learned to write!") Suetonius, 10;

3. Daniel 5:25 מנא ,מנא, תקל, ופרסין (Mene, Mene, Tekel u'Pharsin)

Hmmm....

Well, you seem to be taking us back to a pre-rescue time...

Indeed, all you say is the reality of the day -- and with that reality came the consensus that something had to be done...

Europe acted first and then the US followed -- the reaction was a consensus international reactio -- it was not just an isolated US rescue...which is something I think Livyjr ignores in his commentary...

And something was done -- and Bush and Paulson demanded all this unilateral authority most of which Congress provided and now Bush and friends are sitting on their thumbs saying -- well we wanted the money -- but well -- if we spend it that might make the president look bad -- so we are not going to...

And the money we lent -- well -- we did not put any strings on it so basically the banks can do what they want...

All of this is problematic -- and demands a response -- but it is fixable -- and we should be talking about a solution...

IN developing a solution I think several factors have to be considered..

1. When! --- can we wait until Januarfy 20th to take further action...

I say absolutely not -- we are in a precarious positon right now -- more bad news expected today -- Obama is powerless at the moment -- and so is the Bush Administration in their actions...Congress needs to act and demand that the Executive Branch act...

2. What --- several things need to happen -- Treasury needs to develop regulations demanding that the banks start lending and freeing up credit prudently ...for use in the marketplace...if they fail to act Congress needs to pressure them...

A stimulus package needs to be put forward by Congress to push for spending and job creation...an d cover the gap between now and an Obama administration getting into office...

Bankrutpcy courts need to be given the authority noted above...so that they can begin to restrucrture mortgages fairly...this authority should be temportary with a 3 year sunset...

var articleheadline = "A £516 trillion derivatives 'time-bomb'";
A £516 trillion derivatives 'time-bomb'
Not for nothing did US billionaire Warren Buffett call them the real 'weapons of mass destruction'

By Margareta Pagano and Simon EvansThe market is worth more than $516 trillion, (£303 trillion), roughly 10 times the value of the entire world's output: it's been called the "ticking time-bomb".

It's a market in which the lead protagonists – typically aggressive, highly educated, and now wealthy young men – have flourished in the derivatives boom. But it's a market that is set to come to a crashing halt – the Great Unwind has begun.

Last week the beginning of the end started for many hedge funds with the combination of diving market values and worried investors pulling out their cash for safer climes.

Some of the world's biggest hedge funds – SAC Capital, Lone Pine and Tiger Global – all revealed they were sitting on double-digit losses this year. September's falls wiped out any profits made in the rest of the year. Polygon, once a darling of the London hedge fund circuit, last week said it was capping the basic salaries of its managers to £100,000 each. Not bad for the average punter but some way off the tens of millions plundered by these hotshots during the good times. But few will be shedding any tears.

The complex and opaque derivatives markets in which these hedge funds played has been dubbed the world's biggest black hole because they operate outside of the grasp of governments, tax inspectors and regulators. They operate in a parallel, shadow world to the rest of the banking system. They are private contracts between two companies or institutions which can't be controlled or properly assessed. In themselves derivative contracts are not dangerous, but if one of them should go wrong – the bad 2 per cent as it's been called – then it is the domino effect which could be so enormous and scary.

Most markets have something behind them. Central banks require reserves – something that backs up the transaction. But derivatives don't have anything – because they are not real money, but paper money. It is also impossible to establish their worth – the $516 trillion number is actually only a notional one. In the mid-Nineties, Nick Leeson lost Barings £1.3bn trading in derivatives, and the bank went bust. In 1998 hedge fund LTCM's $5bn loss nearly brought down the entire system. In fragile times like this, another LTCM could have catastrophic results.

That is why everyone is now so frightened, even the traders, who are desperately trying to unwind their positions but finding it impossible because trading is so volatile and it's difficult to find counterparties. Nor have the hedge funds been in the slightest bit interested in succumbing to normal rules: of the world's thousands of hedge funds only 24 have volunteered to sign up to a code of conduct.

Few understand how this world operates. The US Federal Reserve chairman, Ben Bernanke, tapped up some of Wall Street's best for a primer on their workings when he took the job a few years ago. Britain's financial regulator, the Financial Services Authority, has long talked about the problems the markets could face on the back of derivative complexity. Unfortunately it did little to curb the products' growth.

In America the naysayers have been rather more vocal for longer. Famously, Warren Buffett, the billionaire who made his money the old-fashioned way, called them "weapons of mass destruction". In the late 1990s when confidence was roaring in the midst of the dotcom boom, a small band of politicians, uncomfortable with the ease with which banks would be allowed to play in these burgeoning markets, were painted as Luddites failing to move with the times.

Little-known Democratic senator Byron Dorgan from North Dakota was one of the most vociferous refuseniks, telling his supposedly more savvy New York peers of the dangers. "If you want to gamble, go to Las Vegas. If you want to trade in derivatives, God bless you," he said. He was ignored.

What is a Derivative?

Warren Buffett, the American investment guru, dubbed them "financial weapons of mass destruction", but for the once-great-and-good of Wall Street they were the currency that enabled banks, hedge funds and other speculators to make billions.

Anything that carries a price can spawn a derivatives market. They are financial contracts sold to pass on risk to others. The credit or bond derivatives market is one such example. It is thought that speculation in this area alone is worth more than $56 trillion (£33 trillion), although that probably underestimates the true figure since lax regulation has seen the market explode over the past two years.

At the core of this market is the credit derivative swap, effectively an insurance policy against the default in the interest payment on a corporate bond. One doesn't even need to own the bond itself. It is like Joe Public buying an insurance policy on someone else's house and pocketing the full value if it burns down.

As markets slid into crisis, and banks and corporations began to default on bond payments, many of these policies have proved worthless.

Emilio Botin, the chairman of Santander, the Spanish bank that has enjoyed phenomenal success during the credit crunch, once said: "I never invest in something I don't understand." A wise man, you may think.

Simon Evans

Looks like this is about to get interesting. . .


http://seekingalpha.com/article/9967...rgency-meeting

Here is an update on the size of the derivatives market with the latest official figures (.pdf) from the Bank for International Settlements (BIS). Hold your breath, as we are not anymore talking paltry billions but TRILLIONS of whichever fiat currency.
Current emergency meetings on banks and markets are still only in the stage where politicians and central bankers are bickering over how to create a few more hundred billions Euros and FRNs. But toxic MBS pale in comparison to the mushrooming growth of the derivatives market. According to figures released in the quarterly review of the BIS (pp A103) in September the total notional amount of outstanding derivatives in all categories rose 15% to a mindboggling $596 TRILLION as of December 2007.
Two thirds of contracts by volume or $393 TRILLION fell into the category of interest rate derivatives. Credit Default Swaps had a notional volume of $58 TRILLION, seeing the sharpest relative increase after a volume of $43 TRILLION a year earlier.
Currency derivatives reached a volume of $56 TRILLION.
Oh, and every grand balance sheet comes with a trash can. Unallocated derivatives with a notional amount of $71 TRILLION are looming over the heads of the disintegrating investment community too.
However You Look At It, This Is an Accident Waiting To Happen

Don't lose your sleep because of these numbers that KO my desktop calculator. In an ideal world - in which we are not - long and short derivatives would net out each other, leaving only a fraction of risk. The BIS tries to assess this net risk with a total of $14.5 TRILLION (2006: 11.1 TRILLION) in gross market value for all contracts but comes up with a second figure.
The so called Gross Credit Exposure appears almost moderate at $3.256 TRILLION after $2.672 TRILLION a year earlier.
Even when taking the lowest of these figures shudders run down my spine. All emergency talks have so far focused on a few hundred billions in fiat currencies, but the current nervousness demonstrated by hectic talks of finance ministers and central bankers all over the globe should give everybody a vague idea that something here may blow up any day. This pool of so far silent derivatives without a major bust can come to life any day with the failure of a multinational financial firm.
The BIS review is a good way to grasp the dimensions long term monetary expansion has brought upon us. A net risk of $14 TRILLION compares with the annual GDP of the USA. Nobody, absolutely nobody can afford this tab in the case of an unorderly unwinding of this market that is roughly 12 times the size of the global economy. I conclude a lot more paper promises will be burnt in the coming derivatives tsunami. As a reminder, most of these contracts have been moved off balance sheets into under capitalized subsidiaries that profited from the good rating of the parent company. But in case of a default it is this nasty, nasty huge notional amount that becomes a liability.
As the vast majority of these contracts have no market, failure will come in the form of counterparty risk. This makes all the current emergency meeting a bit more understandable if politicians are already aware of the biggest bubble that may find no other way of deflation than a sudden burst. I base my sense of urgency on the rapid growth of the net risk in only one year, rising a stunning 30% at a time when the first signs of the credit crunch appeared.
German chancellor Angela Merkel said ahead of an emergency meeting with French president Nicolas Sarkozy in a TV interview that she would present a rescue package for German banks on Monday. This is also expected from several other European countries. Italian president Silvio Berlusconi went so far as to suggest a concerted stock exchange holiday. It would fit the other crooked nails in the coffin of free markets.

So derivatives are basically insurance policies. Like all insurance policies they take on at least some of the risk of what they insure. So they are a problem if what they insure has problems.

Note to Livyjr, Taz, Arne and interested Readers: We are All in the same Social System, Us in Here
and Us and Them out There...Livyjr, if You will slack off a little on Your Legal Prosecutor Role, I'll
slack off a little on my Psychologizer Role...and perhaps Arne will not need to Moderate to the extent of Vetting...I really appreciate the Opportunity of Exchanging Ideas and to Empathize--Mutually, with you folks...

Well I still want to act out my Economist role, because I see this as basically a problem of economics. And I am not greedy, we can all be economists now...

I certainly agree that we are all in the same social system, and so would any economist.

A good Example of System's Connectedness of Sub-systems, because of their interactive
effects, either Positively or Negatively Effect over-all system's Outcome.

We Welcome Economist and any one that's free...

That is why I say that the problem started with nonperforming loans. The credit derivatives may be a different instrument but they are part of that basic problem, because they are...derivative of it.

While I majored in economics I don't claim to be an expert in it. However, I think that the best way to understand it is to demystify it and simplify its mechanics as much as possible.

Arneoker ....

You don't have a bad back .....

So you should give a least one cola de rata ...

At least one ....

More would be better, of course ....

Especially from a younger, more vigorous person such as yourself ....

But one is a start ....

And there are novenas, as well, Arneoker ....

You could surely have a novena said for tomhye's neighborhood ...

And working class neighborhoods in Cleveland, as well ....

That would be both appropriate and fitting ....

As for me, Arneoker ....

Cleveland is about a thousand miles away, give or take ....

I've not from there ....

I don't visit there ....

I don't live there ....

I don't know anybody there ....

Thus, it is hard for me to have the same kind of physical and emotional attachment to the place that you feel for it ....

And so ....

And Kenichi Omae predicted this present crash for the same exact reasons back in the 80's, I believe it was, Arneoker ....

The ACUTE OVERSUPPLY ...

The thing was, you had to wait the twenty years to see it all play out ....

And where people have memories about five nano-seconds long .....

Well ....

And so .....

Ditto...

And then we could have a

No ....

Not really ....

And there isn't one ....

Well, not true ....

There is the same relationship between the economics in a pool hall where betting is allowed and the economics on Main Street as there is between the economics on Wall Street and the economics on Main Street ....

Or substitute book-making operation for pool hall in my example ....

SAME-SAME ....

So is horse-race betting parlor ....

And you could probably lump bars and whore houses in there, too ....

And so ....

My goodness ....

tazvil04 ....

NO!

I don't think that I have ever heard any of this, before .....

Where did you get this information from?

How come you know all this stuff and I don't know all of this same stuff?

What sources of information do you have that I don't have, that you can know all of this stuff, and me not know any of this stuff, at all??

And it sounds awful scary ....

And so ...

AND?

(sounds of head being scratched .....)

And, tazvil04?

Yes?

The point with respect to today is?

And so ...

It's good to hear that we have no real economic problems. The fire is only in Wall Street. And maybe in Tomyhe's neighborhood. And in working-class neighborhoods in Cleveland. And for at least two of my neighbors over the past year or so. And for the 6.7% unemployed. And for businesses who can no longer get loans. And for businesses like car dealers whose customers can no longer get loans. And for the employees of those businesses. And...

Well you all get the point. Not too many people are being affected!

Okay ....

It's good to know what you can't see, tazvil04 ...

And it is even better to be able to articulate it in so clear and concise a fashion as you have done right above here, in so few words ....

Brevity is an art that you have mastered well, tazvil04 ....

I think that that is something that we can both agree on in here, if nothing else ....

And so ...

NO, Arneoker ....

THAT IS THE POINT!

I'm totally clueless about what you are talking about ...

What are you saying that these people are being affected by?

That they are TAPPED OUT?

Can't borrow any more money because they are deadbeats?

Can't go see the bookie any more because the loan sharks won't lend them any more money?

What do you live on, Arneoker?

Borrowed money all the time?

And you want a system where it can never catch up to you?

OKAY, Arneoker ....

When you find the right loan shark, hey, dude, don't be a hawg, you hear?

Clue us all in, so we can get in on the action, too ....

WE'LL ALL BE NON-PERFORMING LOANS IN AMERICA .....

WHAT?

ME WORRY?

No way, Jose ....

And so ...

You're a pip, Arneoker ...

A loan shark who will let you keep on borrowing forever without sending somebody out to break your legs when you don't pay it back ....

That's a good one, Arneoker ....

Did I already tell you that you were a pip?

And so ...

That's bunkum and twaddle, tazvil04 ....

You can't just dream up regulations out of thin air, like you are suggesting here ....

Regulations descend down from statutes, tazvil4 ....

When CONGRESS hands out TRILLIONS of taxpayer dollars to the CORPORATE LOOTERS with no conditions attached, Treasury doesn't have any lawful authority, jurisdiction or discretion to attach any, themselves ....

It is a PIPE DREAM to assume that they can ....

And so ....

What I understand is that your FLAWED ECONOMIC MODEL is doomed to failure, tazvil04 ....

It has now reached its end ....

IT HAS FAILED, PAST TENSE ....

You think that it can be revived ....

GOOD!

GOOD LUCK, tazvil04 ....

And so ....

My alternative to YOUR financial crisis would have been not having one in the first place, tazvil04 ....

I was not in charge, however ....

NOR DID I BLOW ANY HOLES IN YOUR BOAT!

That was your party did that, if I recall the sequence of events ...

And now, you all got bad backs, and you are telling me that it is my responsibility to have to fix the hole in your boat before you sink ....

But why would it be my responsibility, tazvil04?

I wasn't the one who got you there ....

And so ...

Livyjr, do you know what the corporate paper market is? I heard a program on NPR about it a while ago. It was explained very easily and clearly. They made the point that it was kind of important, that businesses needed it to borrow money to cover payroll and other kinds of immediate obligations. Apparently one of the effects of the credit crisis is that this market has frozen up, and these businesses have trouble getting these short-term (like one or two days) loans that they normally could get as a matter of course.

And would that kind of thing be the equivalent of a loan shark? Gee, why not just simplify things and close down all the banks, if we shouldn't need loan sharks?

Almost a hundred years ago a guy was saying that in Russia. And while he made a mess of things once he was in charge, at least he had an alternative to offer.

"White House ignored meltdown warnings - Regulators backed off rules for mortgage brokers and banks that took on the risk"

By MATT APUZZO, Associated Press

First published in print: Tuesday, December 2, 2008

WASHINGTON — The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed.

It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year.

By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed-rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006.

Two years later, WaMu became the largest bank failure in U.S. history.

The administration's blind eye to the impending crisis is emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy.

Its belief ironically has ushered in the most massive government intervention since the 1930s.

"We're going to be feeling the effects of the regulators' failure to address these mortgages for the next several years," said Kevin Stein of the California Reinvestment Coalition, who warned regulators to tighten lending rules before it was too late.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come.

Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans.

Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules.

None required congressional approval or President Bush's signature.

"In hindsight, it was spot-on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Federal regulators were especially concerned about mortgages known as "option ARMs," which allow borrowers to make payments so low that mortgage debt actually increases every month.

But banking executives accused the government of overreacting.

Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention.

"An open market will mean that different institutions will develop different methodologies for achieving this goal," Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in a March 2006.

Countrywide Financial Corp., at the time the nation's largest mortgage lender, agreed.

The proposal "appears excessive and will inhibit future innovation in the marketplace," said Mary Jane Seebach, managing director of public affairs.

One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes.

Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans.

But in 2006, banks said they shouldn't have to double-check the brokers.

"It is not our role to be the regulator for the third-party lenders," wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70 percent of IndyMac's 2005 mortgage portfolio.

This summer, the government seized IndyMac and will pay an estimated $9 billion to ensure customers don't lose their deposits.

Last week, Downey Savings joined the growing list of failed banks.

The problem: About 52 percent of its mortgage portfolio was tied up in risky option ARMs, which in 2006 Downey insisted were safe — maybe even safer than traditional 30-year mortgages.

"To conclude that 'nontraditional' equates to higher risk does not appropriately balance risk and compensating factors of these products," said Lillian Gavin, the bank's chief credit officer.

At least some regulators didn't buy it.

The comptroller of the currency, John C. Dugan, was among the first to sound the alarm in mid-2005.

Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending.

Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said.

And if housing prices declined, homeowners wouldn't even be able to sell their way out of the mess.

It sounded simple, but "people kind of looked at us regulators as old-fashioned," said Brown, the agency's former deputy comptroller.

NANCY PELOSI HAS ALREADY PROPOSED COMMUNISM AS AN ALTERNATIVE HERE IN AMERICA, Arneoker ...

And I think that she is enacting it now as we speak ....

And speak of somebody who has made a real mess of things while she has been in charge, Nancy Pelosi takes the cake ...

Do you think that her head is totally empty and devoid of content as people say?

They say that it is a perfect vacuum in there between her ears .....

Can you imagine that?

And so ....

At least she is proposing something, as opposed to simply opposing someone else's something.



Perhaps so. Some people have actually proposed alternatives to what has been done.



I've never checked.



Who is "they"?



Actually I am not that imaginative.

Why talk about all of these banks and what happened with them?

Was some kind of problem involved, a problem that we should worry about?

Livyjr, how about the kind of Book-making you and I do when we author a Thread and occassionally
get something published...?...

Do you think it was us then, rla?

Did we really do it with our threads in here?

WE CAUSED THE FINANCIAL MELT-DOWN?

My goodness, rla ....

I don't know what to say ....

Talk about unintended consequences, alright ....

I didn't think we could cause that kind of harm ....

But there I go, assuming ....

And you know what assuming gets you ....

My God, rla, we destroyed the economy of a whole nation .....

You would think it couldn't be done ....

BUT ...

That supposition ignores the POWER of the internet, apparently ...

And so ....

Do you think we'll have to do prison time, rla?

I don't know if I could take that ....

Especially if they put us out on a chain gang ...

I've got a bad back, you know ....

Really ...

And so ...