You'd think that if Lindsey went to all the trouble to pull some stranger's penis out of him mouth and stride to the cameras that he'd think of something worth saying.

Back to the bathroom stalls, senator.
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As an aside my brother a somewhat staunch fiscal conservative who liked McCain has flipped his vote because of the Palin/Kouric interview.

I've talked to a handful of people that feel the same way.

They'll either have to drop her from the ticket but then what?

sorry; ...drop her from the ticket or pray that she can give the performance of a lifetime against Biden but if she doesn't then what?....

"Back to the bathroom stall, Senator."

So, do he and Larry Craig share stalls, or as senators, do they each get their own?

Man, Graham's one pathetic toady. It's like he and Lieberman are in a contest for "Biggest McCain Boot-Licker/Ass-Kisser."

I do wish the Democrats would demonstrate a bit more partisan hackery. Effusive support for Obama has been remarkably lacking among the Dems.

It's almost Freudian the way they torpedo their own efforts. Somewhere deep in their souls some vestige of moral principle is writhing in pain, and unconsciously shaping their words!

Pssst...CB---I'll let you in on a little secret: Lindsey Graham-cracker thinks John McCain single-handedly defeated thirty million Visigoth Nazi kamikazes in the Korean War during the third term of the Nixon Presidency while going mano-e-mano with Osama bin Laden atop the Terminal Tower in Cleveland, Ohio during the 2012 Ronald Reagan comeback tour---which should pretty much tell you what I think about the "mental prowess" of Lindsey Graham-cracker....

The Democrats original proposal was a stinker. I would expect you to ignore that since it was Dodd, Schumer, and Frank that got us into this mess in the first place. And don't forget your presidential candidate who showed his usual leadership capabilities by taking money from Fannie/Freddie and supporting the failed government support of bad loan policies in the mortgage market.

Now that their direct influence on the market has caused a crisis they need the cover of bipartisianship. It amazes me that the left can ignore the obvious incompetence of it's house leadership, but when power is the only goal who cares about intellectual honesty! McCain showed up and helped the house minority leadership come together and demand a few common sense changed to the bailout. He wasn't involved in the nuts and bolts but he provided leadership which is kinda necessary for the executive branch. It is also something your nominee has never done. You all might as well have nominated a waffle maker for all he has said on the talk shows.

I really disagree about the effusive praise part. You don't want Obama palling around with Dodd, Frank, Pelosi et al. This is what the Rovian thugs want. McCain miscalculated once again and threw himself in the middle of an unpopular bailout. His only hope was to stand up against it but it looks like with China pulling the rug out from underneath Wall st. the damn is ready to blow so they need to free up the money.

The adult Republicans no doubt have told McCain to get on board or else this sucker is going down.

"Thank God John came back."

Methinks Graham wants him some McCain man meat.

Love knows no bounds!

I would expect you to ignore that since it was Dodd, Schumer, and Frank that got us into this mess in the first place.

Thank God it wasn't Gramm-Leach-Bliley and The Commodity Futures Modernization Act.

Why am I thinking John considers Sarah Palin his intellectual equal? And why am I disinclined to argue?

"The Democrats original proposal was a stinker."

And at that it was miles better than the original Administration proposal OR the House Republican proposal (More deregulation! Let those pore CEOs have their bonuses! Cut taxes! Insurance!)

I just read some of the other posts on this board. Wow. You guys really do live in a cocoon. And the maturity level of the commentors in general is staggaringly low. I hope some of you guys get out a bit and read around. Dismissing the fact that Frank, Dodd, and the Freddie/Fannie leadership's central involvement in the mortgage crisis and the conflicts of interest that brought us to this point as a racist/partisan attack is amazingly stupid and myopic.

Expanding credit to "lower income" people, implicit government guarentees, and stupid government policies created the situation we now face. The concept of moral hazard is a basic econmic concept. That this site's producers and readers don't understand it is total failsauce.

grinning cat wrote:
They'll either have to drop her from the ticket but then what?

Well, McCain was having dinner with Joe Lieberman...

"Joe, if I get rid of the Alaska Disasta, will you be my Vice-President?"

"Wow. You guys really do live in a cocoon."

Projection - it's not your friend, John. But it is the first tool of Rovian Republicans.

Making sense is so vieux jeu. This is your postmodern Republican Party. They don't need no steenkin' sense!

John, Is it your argument that Fannie and Freddie brought down Lehman, AIG, Bear Stearns, WaMu, and Merrill Lynch? Or that there was a sudden swarm of poor people duping banks over the last few years? Or that McCain/Palin are likely to improve the situation? Or that the House Republican insurance program is a good deal for tax payers?

Perhaps, John, having garbled "moral hazard", you should take up the use of a simpler concept: "arithmetic".

Applied to the Wall Street bailout, it works like this: there are roughly $250 billion in bad mortgages out there, and perhaps $45 TRILLION in derivatives. (Psst, John -- a trillion is bigger than a billion.) If the only problem was the bad mortgages, there would be no crisis. Losing even $250 billion would not threaten even the American economy, much less the function of credit in the world -- particularly because the actual assets underneath the $250 billion in bad mortgages, the houses, won't be worthless. A house that somebody bought for $300k on an ARM last year isn't worthless when it's sold for $100k. (That's how this "arithmetic" thing is applied in practice.)

The reason this is a crisis is that the mortgages themselves were simply an excuse for securities. This did NOT originate with Fannie and Freddie, and the most dangerous part of it, credit default swaps, has never been regulated. (And thus, legislators who like regulation, the Dodds and Franks of the world, had nothing to do with it.)

Smart guys took a few hundred billion in mortgages, and created several trillion in mortgage-backed securities. (Again, that 'trillion is bigger than a billion' principle.) That's why this is a crisis.

BTW, if you want to know how "moral hazard" actually applies, John, perhaps you should think (I know, it's hard for you) about this: a credit default swap is essentially a bet. You, as the insurer (like AIG) bet that of a few thousand mortgages in a pool, only a few will default. I, as the buyer, bet that they will.

Note -- as the buyer, I don't own the mortgages. I don't issue 'em. I'm simply buying the insurance, the mortgage-backed security, the derivative. I'm NOT dealing with the small change of this, which is what (being innumerate) you are talking about.

I'm dealing with the real money: and I have a genuine moral hazard.

Cuz, ya see, John, essentially I have bought (from YOU, dude) an insurance policy that a car won't be stolen, even though I don't own or drive the car. You priced the value of the car at, say, 50k (which is how many defaults you figured was the worst case on the mortgages). But the way a credit default swap works, it is the BUYER -- not the seller, like AIG -- who determines what the value of the policy is.

So under the current system, I can make you pay me a million dollars for a car that you thought you had insured for $50 thousand.

That's the moral hazard in this mess, John. Do the math -- it ain't about the mortgages.

It is not surprising that McCain has offered nothing of substance wrt the Big Bailout of the 21st century. He knows zilch about how an economy works. For him, the meeting in DC was purely a photo op. Be seen looking serious, and all of that. What he looked like, however, was someone sitting at a table where everyone else was talking over his head.

He can't provide true leadership, so the next best thing is to get photos and sound bytes out there that might substitute well enough if few are paying attention. The problem for him is, that this is scary serious stuff and there are too many people paying really close attention for him to get away with it. The pathetic attempts by McCain to demonstrate that he is an economic player are too transparent to make Grahams effusive swooning anything more than a joke.

I want to thank Butch for actually posting something even if I disagree with the talking points. Most of your comments just sadden me and my hope for humanity.

Butch: And at that it was miles better than the original Administration proposal OR the House Republican proposal (More deregulation! Let those pore CEOs have their bonuses! Cut taxes! Insurance!)

Each item in turn.

1. I want to know specifically which deregulation measure led to this crisis. It has to be better than Petroleum price induced inflation and Fannie/Freddy's implicit purchase/guarentee for home mortgages and the resultant moral hazard. And just because dem's are responsible for both of these doesn't reduce their importance.

2. CEO compensation and sarcasm. Since this amounts to less than .001% of the amounts of money being thrown around 2 things are clear. First they weren't paying the CEO's enough because they got bad results and 2 we don't pay congressional democrats enough because they are obviously underskilled as well. Maybe if they payed the people that made these decisions more they could attract better talent. This is all tongue and cheek of course, and I don't expect any of you to really get it. =( This is such a populist mob rouser and the only goal is to inspire those who are ignorant of what is going on.

3. Cut taxes. If you don't understand why cutting taxes helps the economy you are silly. How is raising taxes going to help? What does the government do better than the private sector? Obvious Fannie/Freddie tax supported example front/center.

4. Insurance in a situation like this is a no-brainer. If the government has to step in and bailout some companies then those bailed out need to pay into the fund that bails them out. Should we have just given these companies the money?

The spectacle of McCain rushing back to Washington so he could hang out at his apartment and assiduously avoid making a commitment to anything is hilarious.

So is McCain campaign manager Rick Davis's lobbying firm, Davis-Manafort, getting simultaneously paid by the McCain campaign and by Fred and Fannie. Priceless. Oh, and the House Repubs can try to pat themselves on the back for trying to sell sinking ships insurance against sinking, as if that is more responsible. The problem is that any proposed solution must have a chance of WORKING, or else it should not be done at all.

We would not be in so deep a hole if Obama's proposed prohibition against liar's loans had passed when he raised the issue in 2007. And to the racist wingnuts: the problem was not the color of the loan applicants, it was the color green - of money. A ham sandwhich could get a mortgage at one point. That, my friends, is not racism, it is greed and a lack of oversight.

BTW, it seems McCain blames all of this on earmarks. How many earmarks did Frannie and Freddie get? Or Lehman or Bear-sterns? Ugh. Earmarks are a problem, but McCain's a one-trick pony on the economy.

BTW, IMPORTANT CORRECTION FROM POLITICO:

"Correction: Based on an erroneous pool report, an earlier version of this story said that the McCains and the Liebermans dined at CityZen Saturday night. In fact, they ate at Caf� Mozu, a less formal restaurant at the Mandarin Oriental Hotel."

SEE! It was LESS FORMAL, you commie marxists MSMers (/sarcasm)

Perhaps, John, having garbled "moral hazard", you should take up the use of a simpler concept: "arithmetic"...
"anonymous," thank you for the lucid explanation of this mess. I couldn't reconcile the amounts reportedly loaned in Sub prime and Alt-A mortgages with the collapse of the financial system until I read your post.

It makes sense to focus critical attention on McCain's Bailout performance (heh), but just as important: One of his ads say, he will reform Wall Street. Well, just what are his plans for that? What new regulations, etc? Everyone should be asking him and checking it over.

Finally, I think it's cute for conservatives to be ragging on Democrats for not being strict enough regulators (per the fallacious attempt to pin major Crisis blame on the FMs loaning to those wretched poor/minority folks.)

Excellent post by anonymous. But John I don't know where you goose steppers come up with these simplistic shit-for-brains answers but it would sure be an enlightening experiece to actually see where this drivel originates from. It seems to be the talking point of the week for the rightwing dildos to parrot the one your touting now.

jen f : Yeah. WJC sounded pitiful today, I forget which show but it might as well have been an SNL skit instead of the "real" thing. Which reminds me: how many saw the devastating Tina Fey II last night? They went out of their way, to put in real quotes so viewers could appreciate: the real quotes might as well have been an SNL script!

Arithmetic (e.g., trillion is bigger than billion) is too much for you, John?

Just a couple cursory observations:

1) "which deregulation measure specifically"

The biggest is probably the repeal of the Glass-Steagall firewall between investment, commercial, and residential banking -- but that was largely done after the fact, to catch up to the market rather than open it up.

The collapse of the savings and loan industry (in which John McCain was directly implicated, as one of the Keating Five: remember, John?) pretty much eliminated the "residential banking" part.

And the development of financial services, including the creation of derivatives, mortgage backed securities, and so on, made the old distinction between investment and commercial banking irrelevant.

2) "CEO compensation" Kindly explain to us, John, how a guy who is on the job for three weeks during which his bank loses a billion dollars a day in deposits, and is actually on a plane (much less in the room) when his company is broken apart by the Feds because it is broke, has earned the roughly $20 million he will be paid .... for three weeks 'work'.

The incentive structure and relationship between value and pay is outta whack. Look at Carly Fiorina's performance at H-P, and explain to me how SHE earned her money.

3) "cut taxes" If we don't bring in the revenues to pay for bailing out Wall Street (or the defense budget, or veterans benefits, and so on), then we have to borrow the money -- AND, of course, pay interest. Do the math -- where, exactly, are we going to get the dough?

And finally,

4) "insurance is a no-brainer" You really do have trouble with arithmetic, John. Companies that don't have the cash to pay their current obligations, don't have the cash to pay for insurance.

This is why Paulson -- who can do math -- rejected the idea: mandatory insurance for illiquid companies bordering on insolvency is like telling a guy whose heart has stopped that we'll use the defibrillator as soon as he climbs three flights of stairs.

Kindly explain YOUR math to us, John.

But for 5 1/2 years I didn't have a phone to call i with

every so often you read the gibberish produced by someone like john and you ask: how did he learn to type?

the key deregulation measure, my dear john, was, as dennis pointed out, the commodity futures modernization act, which prevented regulation of derivatives. warren buffett opposed it at the time and predicted just this sort of outcome.

there's no point in even discussing ceo pay with you.

as for taxes, good grief, are there still nitwits making this kind of argument? here's the emprical data: in 1993, taxes were raised under clinton. right-wingers predicted an immediate recession, which, sure 'nuff, showed up 8 years later after the strongest post-world war ii economic boom. in 2001 and ad nauseum, bush cut taxes and right wingers predicted the greatest economy ever. we see what happened.

there is such a thing as taxes being too high, but that's not a problem we face right now.

your comments on insurance are nonsensical.

why, if i didn't know better, i'd assume you work for the mccain campaign!

meanwhile, try to learn a little before you show up citing stupid and false claims: people are entitled to their own opinions, but no their own facts.

I want to know specifically which deregulation measure led to this crisis.

This question has already been answered. Since you're still pushing tax cuts as a cure all, it's no wonder you're too stupid to get it.

Have fun being irrelevant.
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You're missing the point: a local phone call is much more effective than a long distance phone call, because the electrons have a shorter distance to go.

anonymous brings up a good point. Mortgage backed securities are multiplying the effect of the mortgage crisis. Now if you want to get into the nuts and bolts behing that you have to go back to 1998 and repeal of glass-steagal.

Hard to blame those moves on Bush but there are a lot of stories in the MSM that actually do that.

But more importantly multiplyers have been a backbone of the american financial system for decades. They have been implemented and used to create wealth for a long time and have expanded money/loan availability for more and more people as new ideas are put in motion. This has been refelected by the steady and constant increase in home ownership levels in this country. They also create capital which companies use to start new projects, make money and generally be prosperous.

The fact that mortgage backed securities magnified the stupid moves Dodd and Frank made does not change the fact that they were stupid and were the underlying problem in the crisis. If mortgages in this country were generally sound then mortgage backed securities would be sound and more people would have more money.

The difference between my point of view and the one displayed by anonymous is that I view the growth of the capital system and the general wealth of everyone as a good thing, while the views towards wealth here are somewhat antagonistic.

It is also a sharp partisan point of view that you people here hold. I personally think Bush's involvement with the Dem's in the original proposal was lame, and the current proposal that has "bipartisan" support is bunk. Bush has complicitly spent us into record debt with a democratic controlled legislative branch. I will be glad when he is out of office.

You guys should be tarring and feathering Dodd, Frank, Schumer, Rangel, as well as Pelosi and the other people that simultaneously created the mortgage crisis and the egregious inflation of the petroleum market.

"Thank God John came back"? There's partisan hackery and then there's this kind of partisan hackery.

Senator Bennett agrees McCain blew the plan. Congressmen Baccus and Blunt agree McCain blew the plan. Observers in the meeting agree that McCain didn't know the details of the House GOP's plan.

Lindsey Graham is sniffing the throne of a joke.
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Lindsey's inthetankerousness has surpassed the 150% mark!

The beauty of the McCain campaign is we dont need to do any work to describe it. All we need to do to describe McCain/Palin is use their own attacks against them. They are so uncannily accurate at describing themselves.

I see John McCain on the newscast on a phone talking. This means what? The pizza order was wrong?

John writes: "The difference between my point of view and the one displayed by anonymous is that I view the growth of the capital system and the general wealth of everyone as a good thing..."

Not so. I'm ALL in favor of the general growth of capitalism and wealth -- and I am SPECIFICALLY in favor of growing my personal wealth, which is why it pisses me off when political knuckleheads seek to inflict their inability to do math on me through the political system, as John seeks to do.

(patiently) John, I explained to you that you garbled "moral hazard" as it applies to this crisis. One more time -- it is NOT that too many people bought too many houses that they could not afford, which has precipitated this mess. How do I know that? I can do arithmetic.

So I know that trillion is a bigger # than billion. Have you grasped this concept yet, John? Take a moment, we can wait.

Because trillions are bigger than billions, any criticism or plan relating to this mess that focuses on the mortgages themselves, much less which scapegoats members of Congress who (imagine!) actually tried to promote home ownership, is simply full of shit.

Now that you've learned that trillions are bigger than billions, John, you can pass that insight along to anybody who tries to con YOU with it.

You down with that, dude? Or are you still imagining, as the House GOP proposal insists with insurance, that a guy whose heart has stopped can run up the stairs to the debrillator?

John –
1) Cutting taxes. If you think low tax rates are a universal panacea, go to this Heritage Foundation Index on Economic Freedom. Click on US, Australia, Russia, Iran and Venezuela (or pick your own). See the scores and data for Fiscal Freedom and Freedom from Government. The pattern you will see is that countries with high tax and spend policies tend to coincide with better economies and living conditions.

2) Deregulations to blame –Check out this article.

3) Insurance – If this is a good solution, why not just insist that they get it free-market style?

Wow. Howard actually credited Clinton for raising taxes and creating the largely accounting deregulation fueled boom of the late 90's. Gore would be so pissed that you left the internet out! And god forbid I mentioned accounting deregulation. Damn that Bush! Or who was president in the 90's? People always go back to the golden Clinton years but they refuse to acknowledge the accounting shenanigans that were largely a result of his efforts.

The fact that McCain had exactly 0 ethics violations found by a democrat investigator during the Keating investigations doesn't deter anyone here does it. I don't agree with many of McCain's policies, but to call him anything other than a decent honorable human being is wrong. He has many faults, try not fabricating new ones.

I am glad none of you understood the sarcasm in the CEO compensation tab. You reinforce my view of leftists lack of humor and ad hominem style of personal hatred for those that disagree. I in fact think compensation for any individual over a certain amount should be tied to results, but you need to hate me personally and project whatever views that requires.

A few of you have some knowledge of the issues. To the extent you "pick a side" and mold your thoughts/beliefs to fit in there skews your judgement. Try not viewing everything the other side says as evil/obtuse. The partisan need to pigeonhole everything into 2 camps is strong here. The post before this calling everyone who thinks the Freddie/Fannie part of this mess is a central component racists is particularly lame.

McCain used the exact same line on This Week with Stephanopoulos. So, as usual, these guys are all on the same talking points.

Or who was president in the 90's? People always go back to the golden Clinton years but they refuse to acknowledge the accounting shenanigans that were largely a result of his efforts.

Dumbass: anonymous has patiently explained this to you, though you're obviously too stupid to read and comprehend what was written.

So riddle me this, moron-man: Where does all legislation originate, and who controlled Congress from 95 - 2007?

Thanks John and Howard. First time I feel a glimmer of understanding of what's going on.

It may not be possible to lay this crisis entirely at Bush' doorstep, but it is very much possible to lay it at the doorstep of Republican free market ideology. The basic assumption being that when left unfettered, untaxed, and ungoverned the market naturally ends up doing something to benefit the country, which is basically just greed dressed up as economic principle.

Hell, you can track the policy footsteps of Phil Graham and see the economic destruction left in his wake like the path of a hurricane. When greed masquerades as economic philosophy the country suffers.

Glass-Stegall merely unlocked the door, and keep in mind, this deal was passed under a Republican congress which was effectively bum-rushed by financial services sector lobbyists left and right.

Unfortunately as was the case with terrorism, Prince Retard took an existing threat and ignored it. When your governing philosophy is not to govern, you appoint people deliberately to posts where their job will be do the opposite of what their respective agency was setup to do. Thus you get the NEA, the FCC, and the EPA all with appointed jackasses under Bush working against the mission of their own agency. This of course goes double for the SEC and Chris Cox and we now see the results...financial derivatives spurred by greed, blessed by one hack CEO after CEO, and all created within an atmosphere fueled by a half-assed Republican philosophy.

For the most part I agree with the unnecessary attack mode of blogs.

But:
"The fact that McCain had exactly 0 ethics violations found by a democrat investigator during the Keating investigations doesn't deter anyone here does it. I don't agree with many of McCain's policies, but to call him anything other than a decent honorable human being is wrong. He has many faults, try not fabricating new ones."

It seems McCain spends a good portion of time with people who are or have been indicted and with lobbyists. I find that disturbing and worthy of attention. No, guilt by association is not appropriate. However, McCain does seem to have a lot of unfortunate friends.

I speak as a non-politico who is trying to judge DC people from afar. No doubt it is hard to have friends in DC without including many dubious associates. The Republicans never seem to mind using guilt by association, so it's only fair to consider the same info with McCain.

John, strive to recognize when you've publicly made a fool of yourself. Realize that when somebody corrects you, they're doing you a favor. Return it, by demonstrating you've learned something.

That's why I noted that you garbled moral hazard, because you don't understand arithmetic.

It's important to understand why arithmetic counts in a situation like the Wall Street mess, because if you don't, you're susceptible to folks who will persuade you that the problem is caused by, say, "the stupid moves Dodd and Frank made".

Name two -- and use arithmetic.

I keep pointing out that EVEN IF you buy the stupid argument that the core problem here are mortgages that people couldn't afford, and EVEN IF you make the counterfactual leap to racial bigotry, that the people who couldn't afford mortgages (but got 'em anyway) are all people of color, that the banks were forced to lend to because of the CRA: that isn't ENOUGH money to cause the problem.

Not even close. That's why arithmetic helps -- apply it, and you realize that folks trying to get you to believe stupid, racist stuff are actually conning you.

Cuz it isn't that Congress had nothing to do with the disaster. It's just that when you figure out what Congress did that failed, you also have to count HOW MUCH impact it had. Use arithmetic, and you realize the big #s aren't from promoting home ownership.

The Commodity Futures Modernization Act of 2000, which was originally a technical piece of legislation dealing with the way pork bellies and the like are bought and sold, included several provisions inserted in the conference by Senator Phil Gramm, lately John McCain's chief economic adviser.

None were debated in either the House or Senate.

One was the infamous Enron loophole, which enabled Enron's criminal manipulation of the energy futures market.

The other ensured that credit default swaps would be ENTIRELY deregulated, as follows (from the Congressional Research Service description):

"Title III - Legal Certainty for Swap Agreements
Amends the Gramm-Leach-Bliley Act, the Securities Act of 1933, and the Securities Exchange Act of 1934 respecting swap agreements.
Title IV - Regulatory Responsibility for Bank Products
Legal Certainty for Bank Products Act of 2000 - Excludes specified banking products and swap agreements from Commodity Futures Exchange Commission coverage."

That's how credit default swaps put us on the hook for credit freezing up -- not the collapse in home prices, which simply precipitated the crisis. Mortgage lending, after all, is regulated -- and the total amount involved is about $250 billion in bad mortgages.

Derivatives and credit default swaps, on the other hand, involve TRILLIONS of dollars -- and a genuine moral hazard, as explained in an earlier post: and, thanks to Phil Gramm and an undebated pair of amendments inserted in conference, they are wholly UN-regulated.

So, John -- I've shown how you were wrong about "moral hazard" applies to the Wall Street bailout, John; explained how the arithmetic works (gotcha question, John: which is bigger, trillions or billions?), and finally, here is the ACTUAL legislative history of how this mess was created.

Anything on point to add, or do you still hallucinate that we don't like wealth and economic growth?

Cuz somebody has their hand in your pocket, and it ain't us.

Unfortunately as was the case with terrorism, Prince Retard took an existing threat and ignored it.

Yes, it's amusing, isn't it, that the blame for this is being laid at the doorstep of a man who left office 8 years ago, when the majority of the loans now in default or foreclosed were made in the period 2000 - 2006 - a time when, let's note, the entire government was controlled by Republicans. Who elected to DO NOTHING.

This was not another "no one could have foreseen" moment of the type we've become all too accustomed to seeing under the Bush regime. This was ENTIRELY foreseen, by anyone and everyone who 1) pays even occasional attention to the news and 2) has a functioning brain (this explains John's continuing confusion). I'll elaborate: How many times during those years did we hear the phrase that "the housing sector remains strong - it's the engine driving the economy!" A BUTTLOAD, that's how many. Now, how many dumb people like John couldn't connect the dots that there was something wrong with that picture - that if consumer spending on cheap Chinese crap was moribund because consumers HAD NO MONEY, how was it possible that people could afford to borrow a quarter million or more to buy a house? You didn't have to be an economist to see something terribly wrong with that picture, but you'd have to be an idiot to believe that no one in government could see it (which, of course, is what John is, but I digress...)...the fact is, there were a LOT of people in government who saw this as being a red flag - they just elected to do nothing about it, because this sham home lending was the only thing keeping the economy out of recession from 2003 - present. I suspect they saw what was coming, but just hoped it wouldn't come crashing down until they were safely out of office.

Again, they DID NOTHING to head off what was a clear future hazard for the ENTIRE ECONOMY, and they did it so they wouldn't have a recession on THEIR WATCH. But thanks to the people like John, who as PT Barnum noted are the "some of the people who can be fooled all of the time," they will succeed in convincing the dumber among us that it was the people who were in control of NOTHING while the threat materialized who are to blame for it.

Typical.

anonymous,

I don't quite understand what you are saying. How does one take 250 Billion in mortgages and turn it into a 45 trillion market?

Can you provide a simple example?

One more comment on deregulation - It's one thing to ease regulations, but what we tend to overlook is the lack of enforcement on even those rules that exist. And that has been a Bush signature policy.

lew - You don't turn it into a 45T market. You mix it with other financial instruments, such that they're lost in the shuffle.

Lew - that's where it helps to learn a number of acronyms - CDS (Credit Default Swap), CDO (Collateralized Debt Obligation), and SIV (Structured Investment Vehicle). And then study up on the concept of leverage.

As has been mentioned repeatedly and with plenty of arithmetic, the actual amount of mortgages outstanding and the number in default are a LOT less than those trillions being tossed about.

All thse financial vehicles were built on top of mortagages to allow them to be packaged up and sold, freeing up more cash to generate more mortgages - and juicy fees and CEO bonuses based on originating and selling the packages rather than holding and servicing the mortgages.

Supposedly the slicing and dicing of blocks of mortgages (the CDOs and SIVs) allowed very fine tuning of risk (except the risk assessors got their fees based on giving favorable ratings - so even crap got marked investment grade. To give a further illusion of solidity counter-insurance was bought - supposedly gauranteeing safety even in the worst case scenarios. Except that the companies were cross insuring each other for more than they actually could afford to pay.

Then let your leveraging (the amount of money you can have out in loans and gaurantees relative to your actual on hand reserves) get insanely out of control - 30:1 or worse.

Now you have trillions of dollars floating on a thin pool of mortgages. Nobody actually has the money on hand to back their gaurantees - they have to collect from somebody else. But that guy doesn't have the money either - not until you and several other people pay HIM. And nobody can pay anybody till they can sell a LOT of assets that now look pretty dam' shaky. So who's going to buy?

Me.

Google "leverage". You also might want to read all about Long-Term Capital Management and how it imploded.

Hell, "sound principles" of present-day hedge funds require better due diligence than what these jokers were doing.

Oh, and John? Aside from being mathematically clueless, you have also demonstrated absolutely no knowledge of finance. Or economic history.

Since you asked, lew, without jargon: in the olden days, if I wanted to buy a house for 100 grand, I'd go to a bank, put 5 grand down, and borrow 95 grand in principal, agreeing to pay, say, a total of 300 grand over 30 years for the house.

The bank would then make loans based on my OBLIGATION to pay 300 grand over 30 years. In fact, that's where they got the 95 grand worth of principal that actually buys the house for me -- from the other 30 year mortgages they had been making in previous years. (this is way oversimplified, but without jargon)

But it's sorta like the genius who figured out that you can sell the front of the scorer's table at an NBA game for ad space. As soon as somebody thought that was a good idea, somebody else figured out -- hey, instead of selling the space for a whole game, how about we sell it for just a few minutes, and keep rotating ads the whole game?

Mortgage-backed securities and the rest of this stuff are like that -- first, you have the loan, but the BIG money are the ten zillion extremely complex ways in which investors and institutions make bets about how it will all come out: and the thing is, there is MUCH more money in those bets than there is in the original loan.

In my original 100 grand house transaction, with the bank loaning me 95 grand in principal and me agreeing to pay 300 grand back over 30 years, essentially one solid asset (the house), and my 5 grand downpayment has become 200 grand in economic activity BEYOND the original asset, the house.

In the modern hyperheated abstractions of global economics, you probably add another 3-5 million worth of activity, because we no longer sequester residential, commercial, and investment banking -- and it was a basic theology of the Republican party for the past 25 years that it was simply impossible to try.

"The difference between my point of view and the one displayed by anonymous is that I view the growth of the capital system and the general wealth of everyone as a good thing, while the views towards wealth here are somewhat antagonistic."

John obviously hasn't been paying attention to statistical data. He should take a walk outside his gated community at least once a month.

Another aside, I have a family member that is voting McCain come hell or highwater. She's racist and makes well over 250k. Today she was touting the fact that an Obama supporter knocked on the door of someone during an Eagles game.

I asked how she heard about this and she said it was on the news. What fucking news? Local news apparently and we don't live anywhere near Philly or Pennsylvania.

This is apparently Obama's great sin. His surrogates are knocking on doors during football games and trying to prevent voter fraud in Mizzou.

Fear not; John merely proves that the McCainster is still awarding brownie points for spewing meaningless drivel.

First and foremost, child, no one forced any bank to issue a loan to a risky borrower. An entire industry exploded onto the financial stage when Republicans disconnected the core oversight controls from the mortgage system. They speculated on the notion that they could repackage large masses of mortgages and sell them back and forth; the plan being to drive up the purchase prices and not get caught with the hot potato in their hand when the music stopped.

There's a children's game called "Time Bomb" that works the exact same way.

As the demand for these new investment packages grew, the prices flew ever higher, and a second level of loan packagers came onto the field. By this point, regulations were completely out the door at the federal level, and any effort by a state government to reign in the problem was "cut off at the knees" by the Bush administration.

This began in 2005.

Real estate values continued to skyrocket, driven by unregulated, cheap credit and an aggressive marketing campaign by the loan companies. If you think that sub-primes are gone, try logging on to a surf-site like Yahoo some time and look at the ads for cheap mortgages.

They're all "sub-prime;" trying to pull yet more fuel into the almost-dry supply lines of what has become the biggest pyramid scheme of all time: Sub-prime mortgages.

The real kicker is that no one kept track of the repackaging---which was done over, and over, and yet over again until literally everything was suspect. For example, a Countrywide portfolio packed with bad loans would be repackaged into a generic investment portfolio and peddled to Bear; who then repackaged and sold to AIG, who had it repackaged and sold to Lehman, who then got it repackaged and sold it back to Bear.

Tell us, John-boy---what happens to the value of your assets when eighteen of the mortgages bundled into your portfolio set turn out to be the same derelict mortgage?

THAt is what has happened, johnnie---but in order to understand the massive hazard, you have to extrapolate my example by about a million or so bad mortgages.

People who bought at 9% and found their rates at 14% after 24 months; people who were promised by debt-holder A that they could refinance after 18 months, only to discover that they now had to negotiate with debt-holder D, or E, of even F, due to the insane trading of the debt; people who bought at a given price, saw their home's market value plummet, and then had to deal with a lender who summarily called in the difference---or the entire note, for no reason other than to save their own financial hide because THEY were still holding the hot potato when the music stopped, and the glass house came crashing down around their ears.

John, you sound like one of the McCainiac schmucks who piled a ton of money into these bad investments---and now you're looking for a scapegoat t blame your impending poverty on. Take it elsewhere, child; your Grasshopper-and-Ant gambit isn't going to work here. Some of us were looking at this madness years ago and prepared.

You---obviously did not....

"You guys should be tarring and feathering Dodd, Frank, Schumer, Rangel, as well as Pelosi and the other people that simultaneously created the mortgage crisis and the egregious inflation of the petroleum market."

Holy shit this guy is fucking brainwashed. Do some research on the price of oil per barrel under Clinton and then under Bush and the Republicans. You sound like you might have a bit of intelligence so it shouldn't be too hard.

You want to know why the price of oil is high look no further than the White House oil cartel.

why isn't the Obama camp stringing together these tidbits:

Showing the Fox clip where Graham says that you You can't phone something like this in

Then showing where McCain is "working the phones" all week-end.

Then showing how McCain sat silently in the Oval Office for almost an hour, and when called upon he deferred to the House Republicans to speak for him.

That's not leadership you can believe in.

"I don't quite understand what you are saying. How does one take 250 Billion in mortgages and turn it into a 45 trillion market?

Can you provide a simple example?"

Posted by: lew on September 28, 2008
-------------------

Okay, here ya go:

Arthur buys a house from Brenda the Broker (who makes more when the price of the house is larger) and gets a mortgage from Barry the non-bank-Banker for $300K (who makes more when the price of the house is larger).

Arthur doesn't realize the price of the house has been inflated artificially. And, he's only been given the option of an Adjustable Rate Mortgage (ARM) which has an introductory interest rate of about 4% and no money down payment (after all, he couldn't afford a down payment on such an expensive house). Sounds like he can afford it up front. But, a couple of years down the road the interest rate jumps to 24% and he's never going to manage the payments. He goes into foreclosure.

So, the mortgage is bad from the beginning.

It's interesting that it's probably not banks making these bad mortgage loans. Someone ought to look at what kinds of financial firms made these loans and what regulations they were or weren't under. It's also clear the ARMs were a ticking time bomb.

Okay, Barry the non-bank-Banker packages up some mortgages and sells them to a larger firm. Now it's not as easy for someone to evaluate the assets or to service the account. Asset rating services say these mortgages are swell when they aren't. What if Arthur can't make payments? How swell are they then?

Here's where it really gets sick.

Charlie (who probably doesn't know Arthur) takes out an insurance policy (actually a private contract called a Credit Default Swap [CDS]) on Arthur's house in case it should burn down. He gets the policy from David (who probably doesn't know Arthur or Charlie). The kicker is Charlie takes out a $3,000,000 policy on a $300,000 house.

There's one place the larger money comes in!

Whoa, that's gotta set off alarm bells. Right away you've got to wonder if he has an incentive to burn down the house to collect on the insurance. And, what's up with David offering 10 times the value of the asset? How is he going to pay that off?

What if you had a LOT of CDS insurance at jacked up pay-off rates? Who's gonna pay those off?

Note: if you have millions of mortgages worth about $250B insured at 10 times then that's $2,500B or $2T dollars.

There were also standard fixed-rate mortgages which simply collapsed after the ARMs kicked in, collapsing the housing bubble and bringing down housing values to below their mortgage value. They went upside-down. That means millions more sound mortgages were also suddenly bad.

Uncle Sam might have to be called to the rescue.

Add on top derivatives (which nobody understands) and the world market and it's been estimated that $2T suddenly becomes more like $60T total. That's serious money.

So, why were house prices jacked up nationally when real estate tends to be a regional thing?
Has this occurred world-wide as well?
Why were ARMs sold?
Who were these non-bank-banks selling the ARMs?
Why were they allowed to bundle mortgages in CDOs with other kinds of assets?
Why did asset rating agencies not blow the whistle by claiming they couldn't value these things when they were first brought to the market?
Why were insurers who offered CDSes not insured?
Who deregulated them?

There are a lot of questions yet to be answered.

Know what they call Lindsey Graham on the Hill? McCain's work wife.