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kirkydu (93.78)

Conservative Analysis of Credit Crisis and Economic Downturn

Recs

9

September 24, 2008 – Comments (7) | RELATED TICKERS: C , SKF , AIG

in 1999 there was $160m of subprime loans with a default rate of about 2% as the CDA was offset by strong anti-predatory lending laws and state enforcement.

in 2002 the Executive branch of govt began pre-emption policy telling state AGs not to enforce state laws on predatory lending that were tougher than federal laws. ( http://www.napawash.org/resources/peirce...

in 2002 at the urging of Republican Congress and White House, Alan Greenspan loosens credit and floods market with dollars.

in 2003 the SEC with a Bush minion lifted 12:1 leverage limit on investment banks.

in 2004 federal pre-emption regarding predatory lending became rule, via directive of the Office of the Comptroller, a division of Treasury (Bush appointees).

in 2005 dollar begins to tank in a more pronounded way due to huge money supply and soaring U.S. debts piled up past few years.

in 2006 subprime loans grew to $600b.

in 2007 energy prices (and other commodities such as food) soar, making paying mortgages and other expenses more difficult for middle Americans.

in 2007 Investment Banks were levered to about 40:1, except at month end to satisfy regulators when they were about 30:1

in 2008 foreclosures soar approaching 9% and show no sign of abating until mid to late 2009.

in 2008 Bear Stearns, Lehman, Merrill, Goldman Sachs and Morgan Stanley all had to recapitalize at draconian terms, go bust or be bought for less than 10% of their previous value.

in 2008 credit so siezed up that banks won't even lend to each other for longer than a day or two, creating a business cash shortage and forcing many businesses to cut expenses decreasing employment levels to their lowest pct of workforce in over a decade and a half.

in 2008 bailouts of financial institutions by the Federal Govt will exceed $1 trillion, the economy is noticably slowing, household income is down and unemployment continues to ramp up.
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Conservative analysis:

It's all Bill Clinton's fault, vote for McCain.

7 Comments – Post Your Own

#1) On September 24, 2008 at 11:38 AM, Zanibel17 (97.23) wrote:

Hey, kirkydu.  A few questions for ya.

Where'd subprime lending come from in the first place?

What's Fannie and Freddie's role in this?

Which party attempted to get reforms on Fannie and Freddie and which party shot down that effort? 

I'm no McCain fan, but I'm pretty sure he introduced some legislation a while back to counter out of control, lying management at Fannie and Freddie, who, with access to lower lending rates, ultimately crowded private mortgage companies out of the traditional mortgage lending market.

I'd say there are a few holes in your timeline because this mess started in 1932.  I'm pretty sure a democrat played a key role there.

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#2) On September 24, 2008 at 12:05 PM, DemonDoug (79.05) wrote:

Zani, McCain was on board with all the deregulation, he was completely in the pockets of Big Oil and Big Wall Street and 100% for deregulation.  His claims of being a "reformer" are completely false as his only "reforms" have been to loosen regulation in lockstep with the neocon Bush administration.

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#3) On September 24, 2008 at 12:35 PM, Zanibel17 (97.23) wrote:

This Freddie/Fannie thing is traceable back to democrats, it isn't Phil Gramm's 1999 deregulation.  Big Oil had nothing to do with this situation either.  Oil skyrocketed when people/governments divested from equities to invest in hard assets.  Oil is acting like gold right now.

Obama received $109,000 from Freddie/Fannie lobbying efforts in his two years as a Senator.  Democrat Paul Begala was a paid consultant for Freddie/Fannie until last month.

I'm a Ron Paul supporter and I recognize that John McCain is the ugliest kind of politcal shape-shifter.  The fact of the matter is that he did author legislation for stricter oversight of Freddie/Fannie in 2005 and 2006 and the Dems blocked it every turn. 

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#4) On September 24, 2008 at 4:04 PM, kirkydu (93.78) wrote:

there are a lot of people at fault.  But here's a few things to consider. 

The time line and numbers I present are factually accurate (and pretty easy to look up).  No opinions in there.  This financial crisis appears to be the result of a series of very bad decisions post 9/11 by the Repubs in Congress (clearly enabled by impitent Dems) and the Cheney/Bush administration.  And while I understand some serious decisions had to be made post 9/11, it is clear the vast majority were wrong.

Also, re the timeline where I mention the federal preemption and the change in the leverage rules, it is pretty scary just how much power the 'cracies have.  They can make subtle mundane changes to rules and procedure and completely defeat the intent and process of legislation.  Maybe we all need to take a look at how powerful the bureaucracy is and take them on more, rather than we keeping on bickering in stupid political sound bites.

Phil Gramm had a lot to do with the deregulation of FNM and FRE going all the way back to his days with Reagan.  Ane while I agree in principle with market based solutions, creating or backing a few big players in any industry is not creating a market. Hence the theory is lost in practice.  Also, regulation is important because people are greedy.  If both sides of a series of transactions can game the system unchecked, as just happened, there is big trouble, as is happening.

The Dems and Repubs with Clinton signing did pass quite a bit of reform in the 1990s and it worked well until undone by Bush admin beginning in 2002. 

McCain is pretty tight with the neo-cons (and Evangelicals) nowadays which is unfortunate. 

I hope you all liked the punchline at the end of the post. 

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#5) On September 24, 2008 at 4:06 PM, kirkydu (93.78) wrote:

P.S.

Jon Stewart has my permission to use this post in full or part, brushed up or original, as part of his show as long as he flies me out, puts me up and gets me tix to the show.

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#6) On September 24, 2008 at 4:11 PM, kirkydu (93.78) wrote:

Zam

McCain's legislation in 2005-06 was too little too late.

And, if that's what you believe about oil prices you have a fundamental misunderstaning of what drove those prices.

1. The gross devaluing of the dollar set the new floor price in the 60s/bbl. (Stregthening the dollar could get the floor price back into the $40s).  The Bush admin deliberately devalued the dollar, without really any apology or denial (the neo-cons defend the action as good for business, which it is for a few exporters but nobody else).

2. The speculation re demand/supply going forward pushes it another $20-$40/bbl.

3. Leverage pushes it up another 30-50% from there.

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#7) On September 24, 2008 at 4:12 PM, kirkydu (93.78) wrote:

Zam

McCain's legislation in 2005-06 was too little too late.

And, if that's what you believe about oil prices you have a fundamental misunderstaning of what drove those prices.

1. The gross devaluing of the dollar set the new floor price in the 60s/bbl. (Stregthening the dollar could get the floor price back into the $40s).  The Bush admin deliberately devalued the dollar, without really any apology or denial (the neo-cons defend the action as good for business, which it is for a few exporters but nobody else).

2. The speculation re demand/supply going forward pushes it another $20-$40/bbl.

3. Leverage pushes it up another 30-50% from there.

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