Harry's Place

And what say our pro-”free market” readers about the Bush administration’s

And what do our anti-free market writers think about Clinton’s cancelling of the Glass-Steagal Act which partly caused todays disasters?

I worked at Lehman for a while and this is a sad though not unexpected day (I have been short the stock (LEH) since $42). It was a good firm with good people, just too much of a fixed-income house to survive these markets.

Anyway, its a shame and I feel a bit old now…

“While a new McCain-Palin ad proclaims that “our economy is in crisis,” John McCain himself insisted this morning that “the fundamentals of our economy are strong.”

Are you trying to say here that McCain should have said something to the tune of “our economy is crap, let’s all jump out the window”? That sure would have helped.

Common, we get it. Obama is the messiah and you can’t think straight about anything concerning him or his opponents.

To be fair, Fannie Mae (aka the Federal National Mortgage Association) was originally set up as a Government-owned institution as part of the New Deal in the 30s, and Freddie Mac (real name: Federal Home Loan Mortgage Corporation) was founded in the 60s to help balance out the monopoly effect of Fannie.

They were technically privatised but they are state infrastructure – letting them go under would be like letting a water company or the National Grid go bankrupt.

Let’s see how many comments we can get here without “Obama,” “messiah” or some combination of the two. Unless you’re going to blame the whole crisis on him, as I’m sure some are eager to do.

Gene, I’m sure as soon you stop verbally fellating Obama in just about every sentence you type, the sooner we can stop pointing out how you are verbally fellating Obama in just about every sentence you type. Until then…

They were technically privatised but they are state infrastructure – letting them go under would be like letting a water company or the National Grid go bankrupt.

I agree. A reminder of how widespread home ownership in the US (a Good Thing) has always depended on government intervention in the economy.

Well, it’s certainly a bad situation for the banks, and the housing crash and the international inflation problem has certainly hurt the little guy. However the rest of the US economy seems to be growing again.

Unseen makes the point that has been stressed even by BBc financial commentators about Fanni Mae and Freddie Mac- it distinguishes them from private concerns such as Lehman, which contrary to your quoted columnist who says “Fed and the Treasury are carefully orchestrating the breakup and sale of Lehman Brothers to rivals and investor” they are being allowed to go to the wall.
According to the BBC the US gvt has concluded that to bale out Lehman would contravene the capitalist doctrine of moral hazard and encourage banks etc to take reckless risks with impunity.
One tiny bit of fall out affects our family: Our only nephew who has had one holiday in his life since going to college- working right through college, Columbia Law school, term time and holidays included, finally gets a job 2 years ago where there is a prospect of working off his 250k student debt (which unlike in the UK is still so high as he is charged compound interest) -with Lehman as a legal advisor. He had booked to take off all of 2 days to fly to Northern Ireland for our middle son’s wedding on Friday. He has just phoned to say he can’t come- he has to look for a job, and concluded with the words that chill every American: “My health insurance has just been stopped.”

It’s hard to see any way in which this is good for the Republicans. The wider political lesson would be that letting financial institutions do whatever they want is going be a hard sell for a long time and that it’s not a good time to be sucking up to the super rich.

Are you trying to say here that McCain should have said something to the tune of “our economy is crap, let’s all jump out the window”? That sure would have helped.

Well, that would have been a more accurate summary of the situation. Do any Brits really believe Gordon Brown’s claims that he’s ensured the British economy is uniquely well-placed to weather the storms?

Though the US government probably had little choice but to prop up Fannie and Freddie, the real lesson is to avoid getting into this position in future. There are some people here who’ll argue for socialism, some who’ll say Fannie and Freddie should have been left to crash and burn: perhaps the rest of us can recognise that government should act as referee to ensure that things don’t get out of hand in the financial markets in future.

Ami – how long was your nephew at college to run up debts of a quarter of a million dollars?

Umm, Gene,

Fannie Mae and Freddie Mac weren’t exactly private sector companies. This article in the Washington Post lays it out pretty well. Also note the Clinton political buddies who made big bucks from the false accounting.

I think the UK is in a worse situation compared to America.

Its a bit unfair to blame MCCain.
He’s always said he knows little about economics.

http://www.youtube.com/watch?v=r8aT7zuPJ1k

Doubtless someone may be able to illuminate me, but these seem to be principally financial and not economic problems. (I think it was Anatole Kaletsky in the Times who noted how a homeowners’ £100,000 loan multiplied as it was passed along a chain of CDOs and derivatives traders until it had multiplied into several hundred thousand pounds-worth of debt, creating numerous jobs along the way.) When the original source of finance dried up as homeowners defaulted on their loans … well, we know the rest. So, yes, McCain may well have some justification for saying that the economy still shows signs of strength – while the financial sector suffers the effects of its own poor judgment.

I’m glad I filled my car up

Doubtless someone may be able to illuminate me, but these seem to be principally financial and not economic problems.

But for how long can you draw a firm line between the two?

Doubtless someone may be able to illuminate me, but these seem to be principally financial and not economic problems.

Well you’ve partly answered your own question Nick with your example. If the homeowner hadn’t defaulted, then there wouldn’t be a problem. As it is, finance and the broader economy are intertwined.

If you have a pension, it’s now worth less than it was. If the financial sector nosedives the country’s GDP goes with it, government is making less tax and has to raise taxes, cut services or raise debt to cover it. Businesses suddenly can’t get credit or loans, some of them will go bust as a result. People with high personal debts are having to pay them off and are spending less which is bad for the retail sector. And all this then has a knock-on effect on the rest of the economy – think of it a snowball or a set of dominos if you like. How far it extends? Well it probably won’t be the Great Depression Mk II, likely to get very nasty.

If you’ve got a mortgage, you could find yourself paying more (especially if interest rates go up as a result of what’s happening). If your mortgage was already at the upper limits of what you could afford, then you’ve got a problem. If your property has lost value, that compounds the problem. If you work for a business that can’t get credit or has found its sales drying up and goes bust as a result, well now you see how the financial sector impacts on your daily life.

What do expect of a subsidised casino? Privatised gains, while the public picks up the major losses. Socialism for the rich, capitalism for the poor – as an economist at the AFL-CIO recently put it.

Benji, those rich folks at Lehman Brothers are out of a job after it went bankrupt. Doesn’t seem like socialism to me.

Which investment bank do you work for again, Benji?

This has nothing to do with the free-market. The problems with Freddie-Mac and Fannie-Mae were -like most problems – created by politicians in the first place. The ending of the pretence of independence might actually be a good thing, if it means these two monstrosities are put on a long term course to doomsville (as China did with many of its state industries).

Anywa, guess who’s the one of the biggest offenders? Yep, it’s The One again.
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html

Darn, G, you beat me.

What’s really impressive about The Annointed One’s cash-vacuuming prowess is he managed to jump to #2 on a list of top Fannie Mae recipient for 1989-2008. Either he’s really been raking it in lately or he was accepting their largess beginning at Harvard Law.

Well as capitalists like to say: we are due a correction. In this case the correction is a move towards socialism.

In the UK I think people are thoroughly disillusioned with privatisation, in that gas, water and electric companies appear to be exploiting their position – squatting on the infrastructure that we all need. We’re equally fed up with the corrupt bonus system for those who command the troughs, which has been trapped in an inflationary cycle for many years. And I think we are thoroughly p-off about quality of life issues.

All in all, I think the conditions are good for a revival in genuine socialism.

I personally would prefer to see a return to co-operative ideals: various forms of common ownership and also moves towards direct referendum
democracy.

I don’t know how socialism would solve the underlying problems that consumers face with inflation. If the government tried to control these international forces it would bankrupt the nation pretty quickly, leading to mass unemployment and famine – the usual socialist problems.

What the finanical system needs is more regulation, not socialism.

The Dow Jones closed down 500 points today, which is 4.4%. Bad, yes, but the market dropped 23% in the 1987 crash and it didn’t see a surge in support for socialist ideas.

However, long term elliot wave patterns say we could see a fall bigger than the 1987 crash, but I still don’t think it will kill capitalism. These things always seem much worse when you’re in the middle of them.

The main problem with the banks is they got rid of their old leveraging limits and replaced them with new pseudo methods that justified them being able to loan or insure up to 35 time what they had. After the painful process of de-leveraging is over things should start to return to normal. The fed is now letting some of these firms go bankrupt to bring this process to a head so it will not continue on for years.

Gene is just avoiding the violent crisis in Bolivia which he supports, or the peace deal in Zim. The solution is not violence neocons, humanity will crush your bloodlust ideology.

In the meantime you’d better get a Swiss bank account just in case the whole system crashes completely. Most Swiss banks practise conservative banking – no leveraging or gambling on the stock market – which means they can’t go bust.

On th subject of Flanker, Gene, I think we can come together in sweet harmony.

G & Mesquito.
I’m surprised you two want to bring up donations, as McCain has three options over the banking system and the economy.

1.Claim ignorance of the economy, as he’s done on numerous occasions.Argue that he doesn’t know much about the economy but he “has Alan Greenspans book”.

2.Stick with all his deregulation positions and claim the economy is OK.

3.Argue that he has experience of poor mortgage decisions and dodgy banks.Which of course he does.

McCain and Keating had become personal friends following their initial contacts in 1981.[10] and like DeConcini, McCain considered Keating a constituent as he lived in Arizona.[18] Between 1982 and 1987, McCain had received $112,000 in political contributions from Keating and his associates.[21] In addition, McCain’s wife Cindy McCain and her father Jim Hensley had invested $359,100 in a Keating shopping center in April 1986, a year before McCain met with the regulators. McCain, his family, and their baby-sitter had made nine trips at Keating’s expense, sometimes aboard Keating’s jet. Three of the trips were made during vacations to Keating’s opulent Bahamas retreat at Cat Cay. McCain did not pay Keating (in the amount of $13,433) for some of the trips until years after they were taken, when he learned that Keating was in trouble over Lincoln

While a new McCain-Palin ad proclaims that “our economy is in crisis…

I love how the US presidential election system enables candidates to completely avoid any responsibility for their parties’ actions. It’s like McCain was hatched from a pod last January.

As Bill Hicks would have said: “Thanks to you, you fuckers!”.

P.

In all this change and uncertainty it’s nice to be able to rely on some things staying the same…like Flanker being a complete loon.

Yes mesquito you have more in common with the center-right than with the left? big freaking whoop.

Geodesic Malarkey: He was there for the normal time- college 3 years and law school 2 years or whatever. I have never understood this debt, despite his working throughout, working for a law firm for around 3 years and then Lehman, yet whenever I asked the debt was still 250k. He said it was down to the compound interest. He has no vices whatever, no drinking gambling or having fun of any kind. I was just told its an American thing.

Mike @ 9:25 pm

Agreed, but no one knows the extent of the leveraging or where we will be when it all unwinds. The bankruptcy of Lehman Bros. is just a beginning to the process.

This was Wall Street’s biggest one day drop since 9-11.

“Pure Free Market Capitalism” is no less utopian than “Pure Socialism”.

We (USA) deregulated our banks and financial markets and look what we got for it. We left the pigs to manage the pigpen.

In the UK I think people are thoroughly disillusioned with privatisation,

Really? So people want to wait two months for a telephone as they did under the nationalised BT?

Where there are problems with privatisation, it is because it wasn’t taken far enough. On this matter, Thatcher was really a coward.

According to the NYT, a law degree at Columbia will set you back over $80K.

Privatization is a mixed bag in the UK. Some has worked well (e.g. BT probably) and others haven’t (e.g. Railways). What is difficult with the successful privatizations is to work out how much of the improvement would have happened anyway and how much is specifically because of the privatization. I really think that there is a case that competition has driven service improvements and price reductions rather than privatization per se.

The average price for a law degree today is US$120,000 for tuition only.
In 1980 the range was about US$10,000 to US$14,000 for tuition only..

I detect the stirrings of Neo-Keynesianism, I wondered how long it was going to take?

Sigh! Communists and capitalists will never learn until its too late.

Every recent knock to the fragile and collapsing architecture of the global economy caused by neo-liberal failures of regulation and corporate governance, has been shrugged off as either pessimistic false alarm or the predictable droning of socialist mantras, rather than a perfectly clear warning of seismic waves convulsing world markets.

By the end of WWII the need to regulate capitalism and secure a degree of social redistribution was accepted by almost every mainstream Western Industrialist, financier, politician, military chief and trade unionist.

Does it really require millions dead to reach such a fairly unexceptional consensus?

Has McCain offered a solution (that can be examined) to these problems re. economy?

By the end of WWII the need to regulate capitalism and secure a degree of social redistribution was accepted by almost every mainstream Western Industrialist, financier, politician, military chief and trade unionist.

Well we already have a degree of social redistribution in the US. The problem seems to be where to draw the line. I’d rather be enticed to excel with the potential for wealth (capitalism) rather than be forced to work at rifle point (communism).

I think we need a return to the bigger fundamentals of socialism which were about ownership (one’s relation to the means of production) and
direct democracy (i.e. democratic control not being mediated by oligarchs).

Yes, we know that Communism was a disastrous detour for socialism and that democratic socialism has become a sort of bloated welfarism – a parody of socialism which now actively encourages the sofa culture of the ever increasing underclass fit only to dope themselves and stab each other.

However, as long as people are denied any control over their lives, socialism as a movement will be relevant.

Looking at this at the level of football clubs – why do we have to submit to a system of capitalists coming in and turning clubs over. Why shouldn’t we have co-operative clubs owned by the fans? Why shouldn’t there be laws requiring clubs to put 10% of their earnings into share purchase schemes for fans?

I think the difference between old socialism should be that we should not be looking to create state monopolies. We should be looking to create efficient co-operatives and state companies that are prepared to compete with the private sector.

Keynes said something like, a banker’s job is not to avoid risk, but to make sure that if he’s making a mistake he’s making the same mistake as everyone else, so that he’s positioned to go down with everyone else and not stand out.

I heard Alan Greenspan on TV earlier today say that this is “once in a century crisis”. He is wrong, it is a once in 79 years crisis, i.e. first time since 1929. Hopefully, whatever crash we are in for now, will not be like it was then, but it may be the roughest since the Great Depression. In any case, to get yourself in the mood:

“Brother, Can You Spare a Dime?” by Harburg Gorney (1931)

“They used to tell me I was building a dream,
and so I followed the mob,
When there was earth to plow or guns to bear,
I was always there right on the job.
They used to tell me I was building a dream,
with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run,
made it race against time.
Once I built a railroad; now its done.
Brother, can you spare a dime?”

For the entire song, go to http://www.library.csi.cuny.edu/dept/history/lavender/cherries.html

One thing this crunch should do is expose the hollowness of John (I voted with Geroge Bush 95% of the time) McCain’s claims to be a candidate of change.

David All @ 1:22 am

There is Medicaid for the out of work. Social Security and Medicare for the retired.

In the 30s, the Federal WPA built great public works projects. Bridges and dams that are now crumbling. If the worst happens there is much work to do.

It’s 22:30 EDT – the Heng Seng is down 6.67%, the Nikkei is down 5.06%

Also oil is down to $91 a barrel.

Most Asian markets were closed yesterday so there was always going to be a bit of catch up; two down days rolled into one.

I wouldn’t be surprised if the Nikkei is down 1000 points by the end of the session.

Well Obama might have to thread careful in the mortgage quagmire.

“James A. Johnson ran Fannie for most of the 1990s and was its main lobbyist. Until June he headed Barack Obama’s vice-presidential search team, but resigned when it was revealed that he got mortgages on unrealistically favorable terms from Angelo Mozilo’s notorious Countrywide Financial. FNMA’s former head, Franklin D. Raines, was President Clinton’s budget chief. He was forced to step down when serious accounting problems were discovered. Other Fannie apparatchiks include Jamie Gorelick, former Clinton deputy attorney general, and Thomas E. Donilon, Clinton chief of staff to the secretary of state.“

Total outstanding home mortgages in the US stood at $1.82 trillion 1987 when Greenspan did become FED boss. 2005 it was $8.821 trillion to day it is $12 trillion?

1987 to 2005 the housing stock increased by 100% while outstanding mortgages increased by more than 400%, cpi did rise 72%. There seems to have been some asset inflation or as mr Greenspan characterised it “wealth creation”.

“What say our pro-”free market” readers about the Bush administration’s unwillingness to let that market work its magic in the case of Fannie Mae and Freddie Mac”

Well, I’m not exactly one of your pro-free-market readers, Gene, but the explanation is this: the Fed has to try to balance the need to prevent bankruptcies that are likely to have a catastrophic impact on the financial system as a whole against the need to let banks undergo the consequences of the risks they have taken, as part of the markets’ alleged “self-correcting” mechanisms. In short, some institutions must be punished so as to condition the behaviour of the others, but, if possible, the financial authorities would like this to be done with the least possible impact on American home-owners and consumers.

Silence of the Lenders: Is Anyone Listening?
Mr. Bailey had spent the previous six months unsuccessfully lobbying Countrywide, at the time the nation’s largest home lender and loan servicer.
…
Angelo R. Mozilo, Countrywide’s co-founder and chief executive. Lo and behold, Mr. Mozilo replied — inadvertently, as it turned out.

“This is unbelievable,” Mr. Mozilo said in his message. “Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.” …

Guess isn’t so easy to negotiate if you’re an ordinary wage earner a couple of pay checks away from the street, as I f you’re name is Donald Trump. Sort of telling the lads at the bank, 50 cent on the dollar is the best I can offer you and then I’m really stretching it.

“In California, an epicenter of the mortgage crisis, only 1.3 percent of loan modifications struck between January and May this year involved a reduction of principal, according to the state’s Department of Corporations.”

It would be interesting to see figures how house prize/cost relative mean or median real income have developed over a longer time. I have some memory of some graph that the relation had been stable until the 90’s despite business cycles.

I don’t know how socialism would solve the underlying problems that consumers face with inflation.

It can’t. That’s why socialists tend to stay very quiet about inflation and ignore its effect as a tax on the poor. Vide Venezuela, Yugoslavia, Zimbabwe, etc. etc.