In which a group of graying eternal amateurs discuss their passions, interests and obsessions, among them: movies, art, politics, evolutionary biology, taxes, writing, computers, these kids these days, and lousy educations.

E-Mail Donald
Demographer, recovering sociologist, and arts buff

E-Mail Fenster
College administrator and arts buff

E-Mail Francis
Architectural historian and arts buff

E-Mail Friedrich
Entrepreneur and arts buff
E-Mail Michael
Media flunky and arts buff

We assume it's OK to quote emailers by name.

Try Advanced Search

  1. Seattle Squeeze: New Urban Living
  2. Checking In
  3. Ben Aronson's Representational Abstractions
  4. Rock is ... Forever?
  5. We Need the Arts: A Sob Story
  6. Form Following (Commercial) Function
  7. Two Humorous Items from the Financial Crisis
  8. Ken Auster of the Kute Kaptions
  9. What Might Representational Painters Paint?
  10. In The Times ...

Sasha Castel
AC Douglas
Out of Lascaux
The Ambler
Modern Art Notes
Cranky Professor
Mike Snider on Poetry
Silliman on Poetry
Felix Salmon
Polly Frost
Polly and Ray's Forum
Stumbling Tongue
Brian's Culture Blog
Banana Oil
Scourge of Modernism
Visible Darkness
Thomas Hobbs
Blog Lodge
Leibman Theory
Goliard Dream
Third Level Digression
Here Inside
My Stupid Dog
W.J. Duquette

Politics, Education, and Economics Blogs
Andrew Sullivan
The Corner at National Review
Steve Sailer
Joanne Jacobs
Natalie Solent
A Libertarian Parent in the Countryside
Rational Parenting
Colby Cosh
View from the Right
Pejman Pundit
God of the Machine
One Good Turn
Liberty Log
Daily Pundit
Catallaxy Files
Greatest Jeneration
Glenn Frazier
Jane Galt
Jim Miller
Limbic Nutrition
Innocents Abroad
Chicago Boyz
James Lileks
Cybrarian at Large
Hello Bloggy!
Setting the World to Rights
Travelling Shoes

Redwood Dragon
The Invisible Hand
Daze Reader
Lynn Sislo
The Fat Guy
Jon Walz


Our Last 50 Referrers

« Magazines | Main | Tiepolo's Hottie Madonnas »

February 23, 2008

Bailouts, Part II

Friedrich von Blowhard writes:

Dear Blowhards,

The competition for "most revealing anecdote about how the U.S. political economy really works today" is fierce, but this story in the New York Times may be the winner. Edmund L. Andrews writes:

WASHINGTON — Over the last two decades, few industries have lobbied more ferociously or effectively than banks to get the government out of its business and to obtain freer rein for “financial innovation.”

But as losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion.

A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

The essence of the proposal is that Bank of America -- which, as you recall, just voluntarily increased its exposure to the home mortgage market by buying the nation’s largest mortgage lender, Countrywide -- wants the U.S. government to step in and buy some fraction, or possibly all, of these loans, thus providing the banking industry and securitized mortgage-backed bond holders with a sort of re-insurance stop-loss agreement. The industry and the investors would agree to take a modest hit today in order to get a much larger potential problem off their books. This would, of course, be a very, very good thing for the financial services industry and for its investors; perhaps not such a good deal for the rest of the nation’s taxpayers.

(I was quite surprised not to see any mention of the banks and their employees voluntarily disgorging the salaries and profits they’ve made on originating and securitizing such potentially troubled loans as they pass them off to the government, but maybe that’s down in the fine print somewhere. And if Bank of America is really worried about "millions of families losing their homes" in any sense other than how that would impact Bank of America’s balance sheet, it could, you know, just decide not to foreclose on those families, but I didn’t see that option discussed in the story, either.)

This proposal is supported by what the story calls "community advocacy activists" such as John Taylor, president of the National Community Reinvestment Coalition. I checked Mr. Taylor’s group out and found that it describes its mission thusly:

NCRC creates, implements, and supports long-term solutions and strategies that build community and promote individual economic well-being. Through information, research, programs, training and service, we ensure that people in traditionally underserved communities are treated fairly and justly when applying for credit, opening a bank account, getting a mortgage, a loan, or other financial product or service. NCRC ensures that banks, mortgage lenders, and the financial community are aware of their responsibilities and uphold basic standards in providing access to financial products and services to all people without discrimination.

I only highlight the co-opting of the NCRC by Bank of America because it shows that after several decades of sounding laissez-faire themes such as the primacy of the market (used when business is going well and bankers are making a bundle), old Progressive tropes can still be dragged out when necessary by our elites. One such trope, of course, is, “the government needs to stabilize and support my economic interests because otherwise the poor and the vulnerable among us will suffer.”

The story goes on to show that Washington is apparently eager to learn more about the potential value that bailing out Wall Street might have for "traditionally underserved communities":

Surprisingly, the normally free-market Bush administration has expressed interest. Treasury officials confirmed that several senior officials invited Mr. Taylor to present his ideas to them on Feb. 15. Mr. Taylor said he had also received calls from officials at the Office of Thrift Supervision and the Office of the Comptroller of the Currency, which is part of the Treasury Department.

The best part of that paragraph, of course, is the hilarious use of the word "surprisingly." It shows such a touching faith on the part of NY Times reporters that politicians who use ideological arguments to support their policies actually mean what they say, and that it is possible to meaningfully accuse politicians, government officials or financiers of hypocrisy.

I told you this was a great story: it even makes it clear how vapid and misleading political ideologies are as signposts to modern American life.



P.S. And for those of you who are concerned with what a wave of foreclosures would do to many neighborhoods, and thus be tempted to support this kind of governmental bailout despite reservations about the deservingness of greedy bankers, you might contemplate just how the greedy bankers have got themselves in a position to extort this type of public support. Why exactly are we so susceptible to such, well, economic terrorism, and what can be done about it?

P.P.S. More amusing discussions on this topic from Dean Baker, here and here. Actually, it's possible the second Dean Baker posting deals with a different bailout plan; there's so many of them out there I'm having a hard time keeping 'em straight.

posted by Friedrich at February 23, 2008


I've always wanted to ask the politicians/banks about bailout plans: Explain it simply.

1)You have a huge loss.

2)Someone has to pay for the loss.

3)Why should taxpayers pay for the loss?

4) Does the amount of the loss somehow change if tranfered to the taxpayers. If so, how?

5) If the loss amount remains the same, then what benefit is it for the hapless taxpayers to pick up the tab? If the loss amount changes when transfered to taxpayers, what's up with that?

6) If things are on the up-and-up, the loss must come out of the economy.

7) So how does a loss improve itself (to the general welfare) by coming out of taxpayer Tim's pocket as opposed to coming out of invester Biff's and borrower Betty's pockets?

8) So, banks, obama, clinton, bush and a cast of thousands, explain why there could be any benefit to us taxpayers to eat these bad investments? The loss is a loss -- a set amount. Govt. intereference can not erase the loss, it can only change the players. Tell us, oh wise ones, why the players should be changed -- especially when the team the taxpayers are being put on has already lost? Explain that benefit again?

Posted by: sN on February 23, 2008 2:52 PM

I have known for years about the mortgage industry's coming pain and of the causes— primarily extending credit to those who cannot pay it back. This includes, of course, millions of families who could have paid back a smaller loan but who needed a bigger one because, oh gee, the housing prices are shooting up too rapidly.*

Econ 101: When you inject money into a system, prices go up.

Anyway, I am worried about the effect that waves of foreclosures would have on our economy and our neighborhoods. However, I'm more worried about prolonging the agony, especially in locales such as my home state of California where the median-priced home is out of reach of the median-income buyer— by an astonishing factor.

*Also of note is the fact that many people who are, in general, innumerate, trusted the banker to know what they could afford because gee, when their parents bought a house, the bank lent them no more than a sane amount. They trusted the wrong people, and didn't have enough fiscal sense to see the problem. I feel sorry for them, but sometimes them's the breaks.

Posted by: B. Durbin on February 23, 2008 8:54 PM

Hey, I made some bad decisions recently ... And I'm certainly nothing if not "worthy" and "deserving." So where's *my* bailout?

Pretty funny, that article characterizing the Bushies as "free market" ...

Posted by: Michael Blowhard on February 24, 2008 12:06 AM

P.S. And for those of you who are concerned with what a wave of foreclosures would do to many neighborhoods, and thus be tempted to support this kind of governmental bailout despite reservations about the deservingness of greedy bankers, you might contemplate just how the greedy bankers have got themselves in a position to extort this type of public support.

By . . . by stupidly giving free money to dumb Americans who failed to grasp basic details, like that they couldn't actually pay it back?

I mean, the whole affair is an awful little knot of mendacity greed, but it's not like the bankers are the worst players here. The banks are the ones in the hole right now because they gave away their money to idiots. Yes, yes, that was stupid, and yes, they did it because they thought they could make a profit. But ultimately, they didn't make a profit. They were scammed. By small-time cheats who lied on their mortgage loan applications. And who, in an awful lot of cases, still have the money and the house, and are hoping the government (i.e. the rest of us) will step in and pay their debts to the banks. Or at least tell the banks to piss off and pound sand, because they should have known better than to give money to lackwits.

They trusted the wrong people, and didn't have enough fiscal sense to see the problem. I feel sorry for them, but sometimes them's the breaks.

I have difficulty feeling sorry for people who, as you note, were evidently grossly innumerate. It shouldn't be that hard to compare your monthly income and your monthly payments and figure out, "Oh! Hello! I'm probably not going to be able to make that!" This is not a fine detail requiring a degree in finance and an MBA. This is a detail requiring maths you learned in middle school.

Well, unless you didn't, I suppose. America's public education is atrocious, so maybe we're just reaping the whirlwind here. Should have drilled those middle schoolers on the whole "greater-than" "less-than" concept more diligently! Has anyone done a comparison of regional subprime foreclosure rates and standardised math scores say, ten years ago?

Posted by: Taeyoung on February 24, 2008 12:27 AM

"And for those of you who are concerned with what a wave of foreclosures would do to many neighborhoods, and thus be tempted to support this..."

The wave of foreclosures will take prices down to their correct, pre-bubble prices. This is why we should call it a "correction."

The bubble was brought on by many, many foolish people -- Greenspan and his moronic interest rates, banks and their lending and the gullible, irresponsible public. No one should be bailed out.

Ultimately, the housing bubble represents the Baby Boomers' final "f*** you" to society -- by making it so a younger generation can now not get a foothold into the housing market. The most selfish generation went out with a bang! Houses in good places have risen so disproportionally to wages it's impossible to buy unless you're already 50 and rich.

It's bad enough the baby Boomers had to popularize awful music like idiotic Jimi Hendrix and the awful Who. Now they destroyed housing as well as music. All Woodstock music should be made illegal* along with any type of bailout.

Also, in what society do people not have to pay things back? Capitalism is convenient for these idiots when they're making money and only then.

*except Creedence. They were good.

Posted by: Tony S on February 24, 2008 3:44 AM

How many of the homebuyers faced a choice between renting in markets where it might cost them more (or at least no less) to rent a 1000 square foot apartment than to buy a 1200 square foot home? If it is going to cost, say, $1,500 a month to rent an apartment and pay the utilities with a year-to-year lease ... where they will build no equity, and where the landlord might well increase the rent next year ... but for roughly the same monthly expenditure they can cover the mortgage, taxes and utilities purchasing a home, is it "grossly innumerate" to buy instead of lease? Seems to me that many of those who got into sub-prime mortgages probably knew there would come a point where they would either need to refinance and move to a fixed rate or sell and pull out whatever equity they'd built up. Since real estate prices for both purchase and rental have, with few local market exceptions, risen for the past sixty years or so, making the decision to buy isn't exactly foolish, greedy, or mendacious. Combine a few decades of both the government and private sector ignoring the need for "affordable" housing [now there's a rant waiting in the wings] with deregulation of the financial industry, add a plethora of real estate speculators and toss in just a dash of greed and set to simmer ... it's a recipe for today's mess.

Posted by: Chris White on February 24, 2008 8:05 AM

The bankers who claimed to be alpha males turn out to be pisspants? Naturally. Where now are the Big Swinging Dicks of yesteryear? Shrivelled wee pricks, I suspect.

Posted by: dearieme on February 24, 2008 1:46 PM

The bankers didn't make the loans to people to make profits from the interest on the loans--they made the loans to bundle and sell to others, so they didn't care about the credit risks. They are indeed greedy and amoral, especially since the pain has yet to be fully felt by those who bought said bundles of loans, like governments and pension funds--in other words, the average american will get hit twice--once on the devaluation of their home, and once again in the huge losses to pension funds and governments (who will try to make up the losses with increased taxes).

Nifty, huh? People in suits sitting around tables thinking up schemes to rip other people off, and then getting bailed out for any wrongdong by the government (us).

Posted by: url on February 25, 2008 9:16 AM

Excellent taste, Mr. S!

Posted by: Friedrich von Blowhard on February 26, 2008 9:15 AM

Post a comment

Email Address:



Remember your info?