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October 06, 2008

The Financial Mess

Michael Blowhard writes:

Dear Blowhards --

* Ramesh ventures a general theory of the financial mess: Part One, Part Two.

* Charlton volunteers some links: here, here, here, here.

* When in doubt, appoint someone from Goldman, Sachs.

* Peter Brimelow thinks that we may need a new Pujo Committee.

* Wirkman Netizen thinks that the time has come to prepare for the worst. (Link thanks to Dave Lull.) Wirkman offers a pithy summary of our quandary:

Democrat: Pretends to be for the “little guy” and against dem nasty corporations, but at first panic will give billions and billions to subsidize rich men’s failures.

Republican: Pretends to be for the “free market,” but always ready to buckle under to demands for subsidy from crony capitalists.

Average American: Knows nothing about economics, history, or politics, but still thinks our country is great, even after allowing sellout upon sellout.

* Western Confucian lists some postings in which he discusses the great, underknown Austrian economist Wilhelm Ropke. Nice to know there are a few other Ropke fans out there.

* Tom Wolfe has a fun theory:

The whole thing, starting with the subprime, is the fault of the computer. I was just talking to a banker the other day, and not that long ago, 20 years ago, an investment banking house, let’s say, Lehman Brothers, when it got a package of mortgages, they would go through every mortgage, every single one, and they’d throw out the ones that just seemed absurd, they just wouldn’t accept them. Things used to arrive on paper. Today things arrive on a screen, and a screen is back lit, and one of the biggest pains in the neck is trying to read something dully written and complicated on a computer screen. It will drive you nuts—I mean, try it sometime. Now they say, ‘Oh, to hell with it,’ and they just accept the whole package. And if it hadn’t been for that, they’d be going over each loan. What’s happened is the backward march of technology.

(Link thanks to JV.)

* Mencius offers an offbeat-yet-Austrian take on the mess.

* Was Alexander Hamilton the grandfather of today's crony capitalism?

* Perhaps the time has come to take the S word seriously, or at least semi-seriously. Why not attend the Third North American Secessionist Convention? It's happening November 14-16 in Manchester, NH.



posted by Michael at October 6, 2008


The thing about secession is that in the end someone has always got to be the Slovakia, or worse the Moldova in the end run. That's not even getting to the more nasty parts of the planet. Ethiopia and Eritrea anyone? It's not like culture wars stop now that there's two UN seats instead of one.

Posted by: Spike Gomes on October 7, 2008 3:05 AM

I'm from Chicago, so I thought I'd seen every type of corruption and feeding at the public trough imagineable. This bailout, however, sets a new standard for political corruption and bottom feeding by both parties.

I've got to agree with you, Michael, that the audacity of this money grab is hard to take.

There are no good guys in this. As Steve Sailer has repeatedly pointed out, the diversity craze gave the thieves the perfect pretext for grand theft. Government action was the cause of the debacle. Why would anybody assume that further government action is the cure?

Hard to know who to vote for, or whether voting even matters. McCain seems marginally better, because at least he's not the star of the quota system as Obama is. But McCain's hands are dirty, and he has no intention of confronting illegal immigration.

Obama and his fans are plain nuts, but are they any worse? Now that our rulers have filled their pockets, they owe us some of the swag. Obama will owe it to us to provide national health care. I'm not much of a fan of this idea, but since employers are routinely weeding out older workers and dumping their obligation to provide benefits, the burden must be assumed by the fed.

And, that will be a choice opportunity for more stealing.

You are right. The covenant between the people and the government is broken.

Posted by: Shouting Thomas on October 7, 2008 7:17 AM

I see that Neel Kashkari (pronounced: cash-carry) is three years younger than me. Smarter, no doubt, but I am not much reassured.

Posted by: Matt Mullenix on October 7, 2008 10:28 AM

Re. Mr. Wolfe's Theory.
I wonder if you go back to the day when typewritten mortgage pkgs were replacing hand-written ones and check out how many "bad" packages were accepted due to the "clean" appearance of type v. hand-writing, if blame was foisted on the "technology" rather than on the same party that Mr. Wolfe is taking off the hook.
The user.
I'm hoping he was just doing a tongue-in-cheek piece as regards the computer. It's the idiot in front of the screen or, perhaps more importantly, the idiot's supervisor that should be keelhauled.

Posted by: DarkoV on October 7, 2008 12:29 PM

Yet more reasons to support instant runoff voting (to encourage alternate parties) and to "Buy Local". Supporting local businesses, local agriculture, local banks is one of the few things we can do, short of MB's secessionist notions, to fight against this tide of centralized greed in which the two major parties are creatures of the global business elite.

Posted by: Chris White on October 7, 2008 12:54 PM

The US will always bounce back. Until it stops bouncing back.

Posted by: dearieme on October 7, 2008 4:06 PM

This is a bit annoying:

Posted by: JV on October 7, 2008 5:01 PM

May I suggest former Freddie Mac economist Arnold Kling.

Posted by: Alex J. on October 7, 2008 5:41 PM

With regards to Fannie and Freddie being at fault, this is interesting.

Posted by: JV on October 7, 2008 6:24 PM

You go, JV! Thanks for offering excellent links that point to the overblown and misguided meme that CRA, Fannie & Freddie were the primary causes of the crisis, rather than pressures against regulation, lax oversight, Fed interest rate policies, exotic financial "instruments" designed by mathematicians and computer geeks, etc. Perhaps a quick trip over to the current thread on racism will show why the idea that the fault MUST essentially lie with minorities who are not credit worthy getting mortgages is so attractive to so many.

Posted by: Chris White on October 7, 2008 6:39 PM

One of Sailer's commenters put it pithily: "[t]he middle class is actually having to bail out the people hell bent on wrecking the middle class." Well, I suppose that's the fitting conclusion to the insane operating (il)logic that's settled over the nation of late: devise, and operate on, a model that destroys the wealth and wages of American workers, while at the same time assuming that the consumption capacity of this same group of people can not only be sustained forever by debt, but grow, and continue perpetually as the engine of global growth. I boggle at the people running around acting all puzzled that the consumption train has slowed, and acting as if it's perfectly reasonable to expect the "consume more than your produce forever magic economic perpetual motion machine" to kick back into gear any minute now (if only the man behind the curtain can hit upon just the right tweak to get things rolling again).

Have you been listening to all these "experts" of every stripe twittering over the airwaves these last few days? It's like tuning in to characters in a Molière farce reciting their lines. With few exceptions - the people who were right all along - it's more and more clear that they have no friggin' clue in the world what's going on, except for two things on which they are very clear:

1)they need access to more and more of other people's money, and

2)they have an unquestioned (by them) entitlement to access to other people's money, in whatever form of public trust in which it exists, and the right of effecting a reset or a "do-over" of their bad books, at the expense of, well, anybody they can persuade venal or stupid politicians to fleece for them.

These people are insane.

Re secession: When I make my move for secession (not quite settled on exactly which territories I'm taking with me), I don't think I'm going to be relying on some hippies from Middlebury to have my back. (/Dale Gribble off)

Posted by: Moira Breen on October 7, 2008 7:38 PM

Quick definition of the Credit Default Swap market, which seems more and more to be the 800-pound gorilla in this financial mess:

A credit default swap (CDS) is a contract in which a buyer pays a series of payments to a seller, and in exchange receives the right to a payoff if a credit instrument goes into default or on the occurence of a specified credit event (such as bankruptcy or restructuring). The associated instrument does not need to be associated with the buyer or the seller of this contract.

Originally used as a form of insurance against bad debts, these instruments became a tool for financial speculation when the US Commodity Futures Modernization Act of 2000 specifically barred regulation of these trades. (Emphasis all of ours.)

Posted by: JV on October 7, 2008 9:00 PM

"... the current thread on racism will show why the idea that the fault MUST essentially lie with minorities who are not credit worthy getting mortgages is so attractive to so many."

Chris White, martyred savior of black people! You are a liar. Nobody that I know of said any such thing.

Diversity mania created the bureacratic impetus to force banks to lend to people who were not creditworthy. These people were predominantly blacks and minorities.

Saying this does not blame minorities, Mr. Lord Savior of the Colored Folks.

You are just a lunatic and a hypocrite, Chris. You are either a liar or an idiot. Or both.

You don't care about anything except stroking that damned halo you figure rings your head. When are you going to stop acting like a creep? This creepy Bozo act of yours is a disgusting farce.

Posted by: Shouting Thomas on October 7, 2008 9:38 PM

Gee, Shouting Thomas, you took the words right out of my mouth.

Posted by: Charlton Griffin on October 7, 2008 10:51 PM

This Mike Flynn piece is a couple of days out of date, but he seemed to me to give a good account of many of the elements that have created this particular perfect storm.


Or maybe all I'm saying is that I could actually follow his reasoning, facts, and writing ... Hard to know sometimes.

Posted by: Michael Blowhard on October 7, 2008 11:39 PM

Is it just my imagination or has the tone on 2BH become far less civil of late?

The links to various takes on how and why this happened (with the exception of a couple of not entirely credible or unbiased blogs) indicate that "perfect storm" is a mix of the push toward deregulation, lax oversight, the proliferation of impenetrable and arcane financial instruments (MBS, CDS), the Fed keeping interest rates too low for too long, and (dare we say it?) the inattention, lack of prudence and greed of the Titans of Wall Street. That sub-prime mortgages and, especially as balloon rates began to kick in, defaults on those mortgages and acted as the catalyst is certainly part of the equation. To maintain, however, that major cause of this financial meltdown was due to government enforced insistence on diversity in mortgages is, at best, misguided, and at worst based on scapegoating victims rather than the perpetrators of this mess.

Posted by: Chris White on October 8, 2008 12:32 AM

If at first, you don't secede; try, and try again! ;)

Posted by: anon on October 8, 2008 12:37 AM

"Is it just my imagination or has the tone on 2BH become far less civil of late?"

Yeah, it's election season...and a black guy is about to win.

Posted by: Steve on October 8, 2008 2:08 AM

Diversity mania created the bureacratic impetus to force banks to lend to people who were not creditworthy. These people were predominantly blacks and minorities.

bull. Profit mania created the impetus. Fancy new securitizations made it profitable to lend to bad credit risks, white and black alike. That combined with the flood of liquidity from the Fed drove this thing.

The Republican propaganda onslaught attempting to pin this on Fannie and Freddie is bizarre -- the GSE share of the mortgage market *declined significantly* over the bubble. It's especially bizarre to see them trying to blame a failure to regulate the GSEs in 2003 and 2004 on Democrats. Who held the majority in the House and Senate in 2003-04? Oh yeah, Republicans. Who held the White House in 2003-04? Oh yeah, Republicans. But the Democrats made them do it!

Posted by: MQ on October 8, 2008 11:51 AM

There is plenty of blame to go around, but anyone who tries to exonerate Fannie & Freddie is blowing smoke. Between them they wrote or acquired over half of all U.S. mortgages. They used their GSE status to finance the sub-prime market. There were lots of hustlers happy to make immediate profits on writing mortgages into the "ever-rising" real estate market, lots of Wall Streeters happy to buy the mortgage derivatives, lots of builders who welcomed the stream of buyers. But Fannie & Freddie were the transmission, the linchpin. And while a lot of the bubble was in high-end property, sub-prime was huge - and heavily driven by the requirements of the CRA. Bankers and mortgage companies needed to be reined in - instead they were pushed to be reckless.

A thought occurs to m. Mortgagers under pressure to expand "minority lending" began writing unsupportable sub-prime mortgages. Did this lead to their also writing unsupportable mid-range and high-end mortgages? That is, once they started ignoring obvious deficiencies in poor and minority borrowers, did they then say "What the hell" and extend similar exemption to other borrowers?

Posted by: RIch Rostrom on October 8, 2008 1:17 PM

Thanks for your response MQ. I actually laughed out loud at that priceless bit of insight: "Diversity mania created the bureacratic impetus to force banks to lend to people who were not creditworthy." Yeah, we all know that Wall Street is driven by diversity mania above all else. Not only that, but diversity forced banks to helplessly crank out bad loans! It was pure coincidence that lenders aggressively lobbied for looser regulations governing said loans, which made a lot of people very rich before the house of cards came crashing down.

You can keep peeling the layers of idiocy in that statement and never reach its core.

Posted by: Steve on October 8, 2008 1:49 PM

Rich, just anecdotally, I live in the Sacramento area, one of the hardest hit mortgage markets in the nation. In my little exurb of Sac, I'm not kidding when I say 60% of the homes for sale (and there are a LOT of them) are bank owned properties. For better or worse, it's lily-white out here.

It ain't race, it's class.

Posted by: JV on October 8, 2008 2:03 PM

Short answer to Mr. Rostrom's question about lenders writing unsupportable mid-range and high-end mortgages ... Well, duh!

Posted by: Chris White on October 8, 2008 2:04 PM

Black people are not responsible for this mess. chinese people are. You buy housing thinking there's no bottom to the US housing market, and you carry a big stick, everyone's going to do what you tell them to do, even if it's only because theyre greedy and want your trillions of dollars.

YOU need to behave ike a responsible member of the world community and not de stabilize the broker youre buying and selling from.

nobody sent THAT memo to the chinese.

Posted by: Ramesh on October 8, 2008 2:05 PM

Race hustling has become the shit end of the universe. Race hustlers like Steve and Chris are the lowest form of human trash.

I rather like Senator Obama, and I'm quite at peace with his election to the presidency, should it occur, as you will see if you read my blog today.

Obama's supporters, however, are an entirely different matter. Chris uses black people as a virtual human shield. They exist to supply him with a vehicle for his demonstrations of his holiness.

Steve is obviously a complete illiterate, and another braindead race hustler. To adduce from my statements some sort of support for Wall Street financiers is just pure evil stupidity. Steve, you are rotten to the core.

We'll be fine through an Obama presidency. God save us from the vicious race hustlers like Steve and Chris. They are concealing a knife behind their backs. What complete trash!

One thing I've learned from 3 decades in Woodstock. Those who play the vicious race hustling game are the real racists. Steve and Chris, you are both virulent, hysterical, insane racists. I've seen your game plenty. You can't put it over on me. Chris, you are one of the most vile racists I've ever encountered. The problem isn't other white men. It's you.

Posted by: Shouting Thomas on October 8, 2008 2:22 PM

ST, how is this relevant to this thread? I gave some examples of it being about class, not race. You can call that class warfare if you like, but certainly not anything based on race. You're the one who keeps yammering on about that.

Posted by: JV on October 8, 2008 4:45 PM

JV - The Shouting One has seemingly built up such a visceral hatred for anyone who does not share his own view of the world regarding sex, race, politics, class ... you name it ... that those of us who deviate from that view become enemies to be crushed. It helps to either consider him to be in dire need of a good therapist or else to read his comments as one would the transcript of a bad performance artist or shock comedian doing a parody of a paranoid ... hmm, which of the epithets ST has thrown at me should I recycle here, how about ... lunatic.

Posted by: Chris White on October 8, 2008 8:12 PM

It ain't race, it's class.

Posted by JV

but some people are in denial my dear friend.
Listen to Ron Landau my friends.

Posted by: Chic Noir on October 8, 2008 9:34 PM

No, Chris, I know your type.

Met hundreds of them in Woodstock. You are a carbon copy.

You are harboring a guilty conscience. That's why you constantly attack white men as racists.

You are projecting. You are using blacks and minorities as props. Your condescension toward blacks and minorities is overwhelming. The racist of your nightmares is you.

Seek forgiveness for your sins, and cease attacking other men. Other men aren't the problem. You are the problem. You are the racist you are trying to knife in the back. Go look in the mirror and cease your venemous attacks on other men.

Posted by: Shouting Thomas on October 8, 2008 10:00 PM

It's the prospect of an Obama presidency that's driving the wingers completely round the bend. ST's unhinged rants are mirrored by the ones in National Review's The Corner. It's very entertaining.

Posted by: Steve on October 9, 2008 12:04 PM

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