Comments on: It Took Two Ingredients to Make this Financial Crisis

By: Doc

Doc — Thu, 23 Oct 2008 00:35:02 +0000

I would like to see you make some comments about Barack's proposed tax increases for the "wealthy". I remember during the Regan years that it became apparent that the high tax rates was what prevented people from becoming wealthy. Its much easier to save income if the Federal Government only takes 35%, but when its starts approaching 50% or even 70%,its nearly impossible for middle class to get to the level of "upper class". The high tax rates that Obama is suggesting will kill upward mobility. If he really wanted to tax the rich, he would tax capital, but he knows he can't pick on the group - because they would not let him get away with it. I wonder how Warren would react to a 5% tax on accumulated capital. Reducing the cost of government and keeping tax rates low is the only way to attain upward mobility in the long run.

By: Correction

Correction — Tue, 14 Oct 2008 04:47:45 +0000

"...we would be seeing a ton more main street bank failures..."

No, we wouldn't, because those main street bank would have never made those highly-risky loans on those ridiculously risky terms. Main street banks have to be profitable, like any other main street business.

By: The other coyote

The other coyote — Mon, 06 Oct 2008 15:58:17 +0000

I think this post and the Climate Skeptic blog should be required reading for everyone on the McCain campaign - including McCain and Palin both. I wanted to reach through the TV and slap Palin when she went along with Joe Biden's "greed greed greed" meme.

Oh heck, let's just make it required reading for everybody in America, including the stupid people who fell for Henry Paulson's crap (from Joe Sixpack all the way to my 2 US Senators). I'm blaming today's malaise on Henry and Henry alone.

By: Pieter

Pieter — Mon, 06 Oct 2008 09:27:35 +0000

Does the overnight window really accept loans from lenders? I've been following this reasonably closely, and I've never heard this before. It charges an above market interest rate, so, if there were lenders with money to lend, there certainly would be borrowers willing to borrow from them. The problem is that in the two or three weeks banks with money want to keep their money in a mattress, as you put it, other banks will go bankrupt.

I'm confused that you can see deregulation was one of the major causes of this problem and remain a Libertarian. I'd have thought that if you accepted that with the natural business cycle, banks without legal reserve-requirements will lend more than they can afford in the up-cycle and then go bankrupt in the down-cycle, causing enormous problems for the overall economy and for the rest of us, you'd accept that the state has a vital regulatory role to play in the financial market. I don't have a clear idea of Libertarianism, but I thought such regulation was its antithesis.

By: Greg

Greg — Mon, 06 Oct 2008 05:00:37 +0000

The investment banks who created these fancy derivatives knew that when they found someone at the rating agency who really understands what was going on, they needed to hire them away from the rating agency. (That's one of those things I "heard"; it may or may not be true story.)

I can't imagine anyone would deem some of these products (particularly those formed out of many risky mortgage components) as AAA safe, no matter how they were established, after doing some basic stochastic analysis. Any scenario with falling real estate prices should at least have shown massive defaults. I won't blame them for not modeling the financial panic, but they should have seen the obvious risk.

By: rxc

rxc — Sat, 04 Oct 2008 10:46:35 +0000

And don't forget all of the people who worked so hard to inflate the bubble because they thought of houses as primarily an investment, instead of a place to live. Bidding up the prices because they could not afford to be left behind in the bull market of housing when there were few houses available to buy.

I think there is a LOT of blame to spread around, from the Congress-persons who encouraged lending large amounts of money to people who could not afford to pay their cell-phone bills, to the bankers who figured out a way to package these loans and sell them to the "investers" who wanted high returns with no risk ("safe as houses"), to the aforementioned speculators, to the chattering classes that stoked all of the buying frenzy, and then announced the end of the world because(surprise!) more people could not really aford those loans, to (again)the Congress-persons/accounting genuises who insisted on valuing by mark-to-market even when the market stops working, to (again) the bankers driven by greed to set up leverage schemes that would normally make them a ton of money but which collapsed when the leverage flipped.

As someone who is not/was not a member of any of the above categories, I can say this smugly, but with some concern that the same people who caused this are still in positions of power/influence or still spending more than they can afford, so that they can cause more mischief in the future.

By: Dr. T

Dr. T — Sat, 04 Oct 2008 04:23:16 +0000

Yesterday I had a lengthy discussion with a Vice President of the Memphis division of Banc of America (the investment arm of Bank of America). Bank of America completely avoided the risky (subprime) mortgage market, the mortgage derivatives, the buying of other banks’ mortgages, etc. This conservative strategy cost B of A profits and customers (who jumped to competitors that were making bigger profits). Now, Bank of America is sitting on a gold mine. B of A bought Merrill Lynch and two other failed financial institutions for an average of twenty cents on the dollar. The VP estimates that within five years, B of A stock will be worth multiples of today’s value. It’s nice to know that a few institutions did not jump on the bandwagon, and that they’ll survive long after the greedy risk-takers bite the dust. This story also shows that other financial institution CEOs who claim that this catastrophe could not be foreseen are dead wrong.

By: John Moore

John Moore — Sat, 04 Oct 2008 00:36:40 +0000

I just read a post by Armed Liberal entitled Looks Like CRA Didn’t Cause It After All…

I'm not sure I believe that, but it includes a great power-point presentation (full of graphs) that are well worth looking at.

Links to the video, the power point presentation, and the post itself here

By: Mike

Mike — Fri, 03 Oct 2008 23:59:44 +0000

Don’t forget the capital gains exemption on personal residence sales up to $500,000. I think it went into effect in 1997. That helped fuel the asset bubble too.

By: Scott Wiggins

Scott Wiggins — Fri, 03 Oct 2008 23:27:35 +0000

President Bush should commission a special investigative body headed by a special prosecutor to look into negligent and possibly criminal behavior on the part of Fannie/Freddie, HUD and Congressional members charged with oversight of these agencies…This should be handled as a financial Watergate…I mean the loss of hundreds of billions of dollars and the collapse of the two largest mortgage companies in the world should at least receive the same treatment as the bungled break-in of Democratic campaign headquarters at the Watergate hotel. Get it??? The public has a right to know since we are now on the hook for guarantees of hundreds of billions of dollars of bad loans. We need to know who are the responsible parties and what are the failed policies and flawed legislation that need to be overhauled or scrapped. If we do nothing in this regard, then we will have failed to learn from this experience and will be destined to repeat these failures in the future.