Economics Question ...

[Larry Andrews]

STE: Out of curiosity and naivete - what's the ratio that banks are held to? Isn't it something like 10% when they're really strong and goes up from there with known risk factors?

Full disclosure - the last econ class I took was in '87. This getting old crap is for the birds.

[Bob Beamesderfer]

How did we get 30 to 1 leverage on mortgages? Pretty much the only question that needs answering.

Abundance of cheap money. The elixir and poison of our economy.

[Steve Ekstrand]

Under a modern fractional reserve banking system, traditional bank deposits are held to a reserve of 8-14% set by the Fed. Its currently 10% I think.
That means the maximum leverage in simplest terms is 10 to 1. Money creation equals 1/ratio, so 1/.10

[George Schilling]

Mostly racism is behind us, but to dismiss the need for the 1977 law to end discriminatory lending practices is naive.

I don't think it's naive Bob. We'll just have to disagree on this one. See my previous post on two America's. This is what I'm referring to.

George, you cannot label a dismissive response as "leftist." It is the stock and trade of Limbaugh, O'Reilly and Dobbs. Saying that liberals want to silence the opposition is nonsense. O'Reilly's favorite response to those who disagree with him is "Shut-up!" Dobbs calls all that don't agree with him is to call them "idiots." Dick Cheney takes it a step further. What better way to silence the opposition than to operate in secrecy? That is typical of the right-wing approach to governing. As for labels, all the popular neo-con commentators are expert at name-calling.

Don't know much about Limbaugh, but I have watched O'Reilly a few times. I have a hard time understanding why he is labeled as a conservative. He seems to be a centrist to me. All I know about Dobbs is he rails against illegal immigration, and that I agree with. If you care to explore conservative points of view, try Townhall.com. Any pundits I listen to prefer to talk to people who disagree. It make for a much more interesting discussion. I also listen to Air America on occasion. It is here I find that opposing view points don't seem to be allowed on the air and a constant barrage of attacks on conservatives is the order of the day. Very little about solutions, only attacks. I've never heard a conservative guest invited to discuss the issues.

I stated my view of how certain programs created a larger demand for single-family homes than otherwise would have existed. Mr. Paul wants to make the specious argument that programs that have been around through several cycles of the economy are suddenly to blame for the credit crisis of today. It's the same tired Libertarian view that somehow an unfettered market place would have gotten us to where we are without any crises or fallout. That it would have even gotten us to the same place, or the more ludicrous idea that we'd be in economic nirvana, is all speculation on paper. Would we have the exact same problems? No, just different ones. But it's unlikely the percentage of Americans owning their own home would have ever been as high, not only today, but during any period during the past half century.

Again, it's the two America's thing. You see it your way, I see it mine. Without government meddling, I see a much more stable housing market and lower real estate prices allowing many more people to own homes and for the right reasons, a stable roof over their head. Today, much of the artificial inflated price of real estate is driven by tax incentives to own property put in place by the government. It has led us to where we are today.

And from the part of my previous post you didn't acknowledge:

As for the government's "meddling" in the process, had there not been programs to assist home buyers the past half century, the standard of living in this country and likely success of your very own business would be much different. Guess the higher standard of living and concurrent demand for services was the intended consequence you'd rather live without. But if only the free market was at work, ie, no GI Bill, no HUD, no Freddie or Fannie, there is no proof that America would be a nation of homeowners. One of the economic principals you're ignoring is that not only does the money flow to the sectors that attract it in a free market, the sectors that want to thrive chase that money in a way that ensures they can get a piece. If people couldn't afford homes, they wouldn't have been built. Builders would have gone with duplexes or townhouses, something priced for the market that existed. A lot more Americans would be in apartments.

The proof is in common sense.....Everything you mention serves to inflate real estate prices by forcibly taking money for some to enhance a chosen few. Yes, growth in real estate MAY have been slower based on market demand, but honest. We would not have had this false market created by government. Look where these feel good programs have led us today. Was it worth it? I think not.

[George Schilling]

Speaking of Townhall.com, here is a quick and easy read by some who articulates my position better than I ever could.

http://townhall.com/columnists/JohnStos ... ine?page=1" onclick="window.open(this.href);return false;

[Bob Beamesderfer]

O'Reilly isn't a centrist in the slightest. And while it is unfortunate that Air America doesn't bring on opposing views, at least they aren't engaging in the charade that is Fox News: invite those with different points of view, then berate them and tell them to "shut up." It's disgusting. Fox is all about attacks, as in much of conservative talk radio.

You cannot reasonably argue that the incentives to home ownership that have existed for half a century, through several economic cycles are the sole or even the largest reason we are at this crossroads. The mortgage and non-depository banking entities and their practices in the market are the root, trunk and branches of what is happening now. Twenty years ago, few home loans were available with less than 20% down, fewer still with less than 10%, despite government backed lending. Fannie, Freddie, HUD and FHA didn't create the 125 loans, the zero-down loans and the interest-only loans. VA loans are 100%, but borrowers still need to qualify.

Speaking of which, the mortgage brokers/lenders qualified these borrowers, sold loans that were tied to what used to be slow-moving interest benchmarks like the LIBOR. They basically guessed wrong. The economy didn't go that way for a lot of reasons. There is no way you or Ron Paul or any other economist can take link the credit market's woes of today back through several economic cycles, including two market crashes, double-digit inflation and its partner of double-digit lending rates, back to the creation of government loan programs. The farthest you can go back is into the 1980s and the changes in the regulatory landscape that took place for all markets. Since then, there has been a slow tightening of regulations, but the market has out run that. Now, McCain is calling for more banking regulation. What party is running with?

It is not a "two Americas" thing at all. How would single family homes be more affordable without loan programs or the deduction, which isn't all that much unless interest rates are high? Chosen few? The programs broadened the market for homes, made many companies and the owners/stockholders a lot of money. There isn't anything "chosen" or "few" about it. We're not talking about loans for non-capital stock that will never appreciate, ie, bass boats, cars, jet skis. Home prices still move up and down within a market. If that market were truly constrained, then prices wouldn't rise and fall as much as they have the past two decades.

Again, without the GI Bill, HUD, FHA, other loan programs and the deduction for mortgage interest, the standard of living in this country would much lower today. Like I said, in a free market the flow of money is chased. If the average consumer can't afford a single family home in that market, then they will buy what they can afford. If they can't afford that, they'll have to rent. Home builders can't simply price their product to the average if that average is below the profit level. Commodity prices over which they have no control will dictate the cost of materials and in large part the cost of the product. To this day, commodity prices are controlled by the market with a few exceptions for certain food stuffs. Copper, lumber, aluminum, are all traded as commodities with few restrictions.

[Bob Beamesderfer]

Speaking of Townhall.com, here is a quick and easy read by some who articulates my position better than I ever could.

http://townhall.com/columnists/JohnStos ... ine?page=1" onclick="window.open(this.href);return false;

So now Mr. Stossel is an economist. Interesting.

Here he stops short:

This is the path to stagnation and poverty. As Nobel Laureate F.A. Hayek taught, markets are too complicated for planners to know enough to plan them. The relevant information, scattered unspoken among billions of market participants, is beyond the bureaucrats' reach.

It is also beyond the reach of the analysts at all the investment banks and bond firms. He can squawk about AIG, and any other private-sector entity he likes, but when it comes to Fannie and Freddie he's abundantly ignorant of the effect a failure of those two entities would have had.

As for the rest of them, "if they're gonna drown, put a hose in their mouth." The truly screwed are the stockholders of these companies because they'll not only lose their investment, they'll also pay for the bailout. Like I said before, the executives of these firms, although fired, walk away with the millions in salary and whatever else is paid in "go away" money. Everyone else suffers to one degree or another.

[John Coffey]

How did we get 30 to 1 leverage on mortgages? Pretty much the only question that needs answering.

I splain'd it already. Remember, Goldman, Bear, Lehman, Merrill, Fannie, Freddie, and AIG are not defined as depository banks and are not subject to regulation regarding leverage ratio or capital assets.

[Mike Simanyi]

How did we get 30 to 1 leverage on mortgages? Pretty much the only question that needs answering.

Magic wands and special Kool Aid.

[Steve Ekstrand]

It was a gross market failure, but why?

30 to 1 is insane. Obviously, the risk was not properly priced. But why? Fraud? An artificial backstop? Improper ratings? The rollups of subprime with higher grade paper to create AAA packages smacks of the very same path we went down with Drexel and Michael Milken's application of portfolio theory on Junk bonds. Basically the idea that 10 pieces of junk through the magic of diversification becomes AAA paper. Huh??? Diversification lessens the risk and it makes an investment in subprime or junk a profitable strategy when the risk premium is high enough. Milken was right. But it only goes so far. Its still junk. Back then the flow of money into junk paper was so immense that risk premiums dropped and the amount of new paper of even lower quality exploded until they whole thing imploded. Seems like the same thing happened with mortgages.

I don't see an alternative to a massive bailout. We can't have a modern economy without banks and lending. You can't just let the system knot up for any period of time as a matter of principle. And when you have a royal jackass like Barry Obama out there on the campaign trail gleefully telling people how the McCain Bush policies have bankrupt the FDIC and your money in the banks is no longer safe at all, you have to act immediately. I'd hang the bastard for sedition.

[Bob Beamesderfer]

And when you have a royal jackass like Barry Obama out there on the campaign trail gleefully telling people how the McCain Bush policies have bankrupt the FDIC and your money in the banks is no longer safe at all, you have to act immediately. I'd hang the bastard for sedition.

Steve, put down the drugs and tequila! That's a colossal overreaction.

[Steve Ekstrand]

Is it? The worst possible thing in a pinch is total public panic and a run on the banks. Obama went out there and campaigned on that fear, created that panic for his own political gain. And the GOP is the party of fear??? Obama is a traitor to his country. We hang traitors don't we?

[John Coffey]

FYI... I've read that a proposal to include bad car loans and bad student loans has been added to the bail-out. Patches seems to have some connections. I guess I'll call him add my bad loan to an ex brother-in-law...

[Bob Beamesderfer]

Is it? The worst possible thing in a pinch is total public panic and a run on the banks. Obama went out there and campaigned on that fear, created that panic for his own political gain. And the GOP is the party of fear??? Obama is a traitor to his country. We hang traitors don't we?

Sorry, better back that one up with something real. Obama actually told people to cash out? Despite the depth of the crisis, not that many depository banks are in trouble, even if you count the investment banks that just filed to convert themselves into depository banks. Even so, if it were my bank that was about to go into receivership and I needed that money to cover my mortgage, ANYONE who hid that information or downplayed it would be on my list of those to include in a class action. MCain, OTOH, is suddenly in favor of more regulation. Hmm where was that enthusiasm when Charles Keating came calling? Oh, that's right! He just sat in on those meetings and didn't really try to sway regulators from their investigation. Maybe he mumbled something about tiger cages and his Budweiser beer trophy wife.

Don't forget, while y'all were dealing with Johnnie Crean, I was living in Arizona and watching McCain dodge the carpetbagger label to be elected to a House seat long held by a member of a pioneer Arizona family. Without his connection to Cindy and her Dad's money and power he'd have been run out of the state on a saguaro. His succession of Goldwater was mapped out from the moment the AZ GOP embraced him for public office. I was also there to witness Charlie Keating's little rip-off of investors. Keating was one of the Phoenix 50, the most capital city's powerful citizens, as was Cindy's father. The political power of that group had a deep reach in state politics, including the actions of the Arizona Republican Party. McCain wasn't chosen for Goldwater's Senate seat so that he'd be an "outsider." He was chosen so that he could do what most congressmen do, which is to get as much of whatever federal monies, projects or influence could be steered in the direction of his constituents, and most important, his Phoenix 50 backers.

I might be little more touchy about the subject given that Sam Zell has taken my pension and put it up against his "acquisition" of Tribune. Zell didn't put up all that much of his own money, but the holdings of the other "partners" are risked ahead of the troll's paltry investment. So, because I can't make a "run on the bank" until I'm 55, I'm in no mood to excuse the executives that have f-d this up. The former head of Lehman should be forced to give back his salary of the past three and a half years. He ceased to have earned it once the firm became insolvent. More regulation? How about more accountability? I'd bet Paulson and his friends are more than willing to entertain more regulation as long as it doesn't infringe on the ability of execs to make big money and walk away blameless as stockholders and taxpayers hold the nearly empty bag of manure.

[Reijo Silvennoinen]

So, here's a solution a friend of mine "cooked up":


----- Original Message ----- Subject: 85 billion humor

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman
and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free.
So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife have $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it'll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves
Enable Deadbeat Dads to come clean or else

Remember this is for every adult U S Citizen 18+ including the folks
who lost their jobs at Lehman Brothers and every other company
that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out
a puny $1000.00 economic incentive that is being proposed by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!

As for AIG - liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can work.

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion
We Deserve It Dividend more than the geniuses at AIG or in Washington DC .

And remember, The Family plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

Ahhh...I feel so much better getting that off my chest.

Let me know if it goes thru'.....

Reijo

[Steve Ekstrand]

Obama asked the crowd if they thought their savings and retirement funds were really safe? Then he said the policies of McCain-Bush have bankrupted the FDIC. Now what? Will the ATM still work? Is your life savings still there?
No, he did not tell people to go out tomorrow and withdraw all their money. But come on that is the worst kind of campaigning on fear. He is willing to do real damage to our country to get elected.

We're all worked up over spending $700 billion to help repair our economy and save our financial and housing markets.

Obama wants to hand over $845 Billion in additional aid to a blind fund managed by the criminals at the UN. http://www.nationalledger.com/cgi-bin/a ... &num=18845" onclick="window.open(this.href);return false;
Is that the change you're looking for? Obama is Jimmy Carter v2.0 and he'll come to power with Pelosi and Reid holding enormous majorities. It truly is the end of the world.

[Larry Andrews]

http://www.newsweek.com/id/157748" onclick="window.open(this.href);return false;

Do we get to hang this one too? :gpower:

I still think that I'm a lot more interested in seeing the heads of failed Wall St., Bank and Insurance company executives proudly displayed atop a tall stick, right where they belong. But, what does that have to do with economics?

[Bob Beamesderfer]

The Global Poverty Act (occasionally called the Global Poverty Tax or World Poverty Bill), is a bill currently in the U.S. Congress. The bill is co-sponsored by 84 representatives and 30 senators. It does not allocate any funding.

The Global Poverty Act would require the U.S. President to develop and implement a comprehensive strategy to further the United States foreign policy objective of promoting the reduction of global poverty, the elimination of extreme global poverty, and the achievement of the United Nations Millennium Development Goal of reducing by one-half the proportion of people worldwide, between 1990 and 2015, who live on less than $1 per day.

http://en.wikipedia.org/wiki/Global_Poverty_Act

So, now a bill co-sponsored by 94 members of Congress is Obama's. He and Richard Lugar introduced it in the Senate; Luger is the ranking Republican on the Foreign Relations Comm. It was first introduced in the House:

The Global Poverty Act (H.R.1302) was introduced in the House of Representatives by Reps. Adam Smith (D-WA) and Spencer Bachus (R-AL) and collected 84 cosponsors before it was passed on September 25, 2007. A companion bill (S.2433) was introduced in the Senate by Senators Barack Obama (D-IL), Chuck Hagel (R-NE), and Maria Cantwell (D-WA) on December 7, 2007. There are currently 16 cosponsors in the Senate, including Christopher Dodd [CT], Richard Durbin, Richard [IL], Russell Feingold [WI], Dianne Feinstein [CA], Tom Harkin [IA], Tim Johnson [SD], Richard Lugar [IN], Robert Menendez [NJ], Patty Murray [WA], Olympia Snowe [ME], Joe Biden, [DE], Gordon Smith [OR], John Kerry [MA]

http://www.bread.org/take-action/ol2008 ... y-act.html

The Congressional Budget Office weighs in:

CBO Report - View Report: [url]http://w ... 3&type=cbo

A budget report is available for this bill from the Congressional Budget Office, which serves Congress.

Here is an excerpt:

Based on information from the State Department, CBO estimates that implementing S. 2433 would cost less than $1 million per year, assuming the availability of appropriated funds. Enacting the bill would not affect direct spending or receipts.[/url]

Question: CBO says this bill would cost less than $1mm/year to implement and there is no adverse effect to state, local gov'ts. Right wing blogs claim it will cost taxpayers $845 billion between now and 2015. What is the truth?

Answer 2: The 0.7% of our $13.8 Trillion GDP is $96.6 billion. This 0.7% number was established by members of the UN (including the US) 35 years ago and has been reaffirmed many times. In 2002 George Bush was at the Global Financing for Development conference in Monterrey, Mexico where he and other world leaders AGAIN reaffirmed this commitment to the UN. Yet the US still pays $65 billion less than our agreed commitment to the UN EACH YEAR. At that conference President Bush stated that reducing global poverty will reduce terrorism. No one disputes that, so it is unclear why he and our congress have restricted these funds to the UN. This bipatisan Obama-Lugar bill simply asks the Senate to acknowlege our commitment and enable the government to honor that commitment. If for no other reason, because (as President Bush pointed out in Monterey), reducing world poverty is one of our most valuable weapons against terrorism worldwide. The House version was passed last year. It is unclear why the Republican majority in the Senate has not voted on this bill.

http://www.govtrack.us/congress/bill.xpd?bill=s110-2433

[Larry Andrews]

See, that's the problem Bob. You're trying to bring boring reality to a fearfight. You'll always lose because limbic and logic simply don't mix.

[George Schilling]

We know how well government sponsored welfare has worked in this country, so why not pass it on the the world. Riiiiight!

[Bob Beamesderfer]

We know how well government sponsored welfare has worked in this country, so why not pass it on the the world. Riiiiight!

The stated purpose of the legislation is get all the EXISTING programs on the same page, reduce cross purposes and make the whole foreign aid system more efficient. Nice goals, whether they can actually be implemented ... but not trying to stem poverty just makes the U.S. an easier target for nutjobs.

Aside from the fact that welfare was extensively revised under to Clinton to take the able-bodied off the dole after a fixed period of time.

[Bob Beamesderfer]

See, that's the problem Bob. You're trying to bring boring reality to a fearfight. You'll always lose because limbic and logic simply don't mix.

I know. Bad habit. I like facts, not distorted interpretations, especially those from cheap imitations of AIM.

[Steve Ekstrand]

I find your truth even more disturbing...

[Bob Beamesderfer]

I find your truth even more disturbing...

Because it had bi-partisan support, was part of a long-standing goal of the UN that was proffered by the last two presidents, and continues the existing and long-standing foreign policy goals of the US?

Geez, Steve I didn't think you were a John Bircher.

[Doug Teulie]

I have an Idea to solve the financial crisis and make this more of a win win.

We, the tax payers are going to pay to bail out the banks. The government will hold the distressed properties.
As collateral I say we should hold some government land until the government pays us back.
I say we (CSCC) get the use of El Toro for the next 25 years as collateral for the bail out money.