A big part of the problem is about ten years ago they loosened up the lending fraud laws and we are now finally seeing the consequences on a large scale.

It's kind of like what happened with the tech market. A bunch of crooked, short-sighted people made fast cash and it became so easy to do a lot of people did it and when a lot of people do it, the shit hits the fan.

It's the company's fault as much as it is the governments fault. Deregulation seemed to be code word for turn a blind eye and hope everything works out. But the banks, lenders, and insurers all had standards that they failed to uphold. You don't give a $400,000 loan to a newlywed couple working at Wal-Mart that has no assets. I don't care what they "thought" would happen. It's painfully obvious that their lending practices were going to fail over a period of time. These companies were all mismanaged imo. So it wasn't anything illegal, fraudulent, or a situation like Enron. It is a situation of the people in charge being incompetent. I guess you can also blame the American people who go out and buy hdtvs, ps3s, iphones, and all other kinds of shit they don't need even though they don't have a pot to piss in.

I'm interested in hearing what actual economists have to say about the economic situation and how to prevent it/what should be done at this point. I've only heard commentators, mainly of the conservative variety, try to sound intelligent and tiptoe around the issue that this is a result of deregulation, and avoid saying they wouldn't want the government to bailout these companies. Honestly, I'm not sure the government should, but the cure may be worse than the disease. I think there needs to be regulation so that this isn't a regular occurrence, right? And if there isn't regulation, don't lending and investment banks have an incentive to be reckless the next time around too, because Uncle Sam is their safety net?

I heard an economist on NPR basically say that the bailout was a lesser of two evils. No bailout would have very likely meant something similar to the great depression.

The short term consequence of AIG failing would have been long term ... maybe. At the heart of all the trouble is that no one seems to know what's happening. This entire debacle is a good argument against unrestrained capitalism. People don't invest money in vacuums. I have fairly little money in the stock market, but the failure of AIG could make it impossible for me to own a home anytime soon. Should we bail our AIG? Probably. And we should pass laws that actually make people accountable for what they sell.

[quote="Spankminister"]I'm interested in hearing what actual economists have to say about the economic situation and how to prevent it/what should be done at this point.
As to Joels point, yeah, as far as I can tell, because of the opacity due to zero regulation, aside from the individual parties to each deal, the only thing outsiders know for sure about the nitty gritty of the whole buying each others risk business is that it is really really complex, since no public records exist, theres no official anwers just "rumors" about who owns how much of X firm's assets...i.e. deebt/risk/etc. Plus because all those "assets" are entirely speculative, no one knows for sure whether anyone has any actual capital. As for actual economists, my dad is an economics professor, heres what he said when I asked him to explain it to me:
(NOTE: keep in mind he is the one who tried to teach me math when i was a kid, so he knows how 'inattentive' i can be, so if it sounds remedial...thats probably why. That being said...common! Thanks for defining laissez faire DAD, exactly how RETARDED DO YOU THINK I AM???):

"sky is falling.....laissez faire capitalism (no cops allowed in the market) has always been prone to panics caused by speculation.....where some asset is driven to untenable heights...it was tulips in the 1600s...stocks in the 1920s, real estate in the 1980s, dot com stocks in the 1990s and real estate again now....supposedly smart people (investment bankers) borrow huge sums by putting up $3 of their own money for every $100 they borrow (leverage) and then buy assets..but this time it was mortgages given to people who never could afford them...the poor who are(sub-prime)...and at interest rates that went way up to cover the additional risk....a really stupid idea since they could not even afford a low interest mortgage,,,,and then other institutions got involved by insuring (hedgeing) the high risk mortgages in case people DID default on the mortgages...
this ponzi scheme WILL work as long as speculation drives up the asset price... which occured in real estate... and investment bankers make billions on the small (leverage) $3 original investment..... and even people in trouble (like Kim) could always sell the asset (house) and continue the Ponzi scheme....

music stops when enough people get so much debt that they start to lose their houses and the real estate bubble starts to burst....and housing prices actually fall....

Alan Greenspan was the republican "free market" ideology guru who rejected putting cops (regulations) in place years ago when some saw the beginnings of the coming crisis...they even fired the head cop regulating Wall Street because he too saw the crisis and was replaced by another republican ideolog....and Phil Gramm who is McCains head economic advisor
(he is the one who said this recession is only Mental... and Americans are whiners)
put a law into place 5 years ago that actually PREVENTED regulation of this Ponzi scheme...what do they teach in Law School???? Cardozo does a great job on the Inocense project but they need to address the way the law is skewed.... many many people... like Anthony Mozilla as just one example ..... walk away with hundreds of millions while effectively trashing the system for everyone else.... WHAT IS IT THAT THEY TEACH YOU IN LAW SCHOOL???????"

Sigh, thanks Dad, despite the fact that like me, you can't spell, at least you know what the SEC is, I on the other hand, need to be told they are COPS because im RETARDED even though im in LAW SCHOOL.
At least I can spell Ideologue

Although it's not as though nobody saw this coming.

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

John McCain May 25, 2006, on behalf of the Federal Housing Enterprise Regulatory Reform Act of 2005

The bill died in committee.

The whole thing isn't exactly "crooked", it's not as though a bunch of bankers set out with the specific intent of fucking everything up. But it's more the low-grade bullshit, "I'll get mine and then get out" attitude; which, frankly, is more reprehensible than outright thievery. At least a thief has an incentive to steal from the best, and some idea of whether he's taken too much; a parasite only wants to suck until he's full to bursting, and then who cares about everyone else?

I think the whole thing got started when you had people who began touting the idea of real estate as primarily a money-making investment. The result was that the real-estate financial industry shifted from offering "ownership" products (long-term fixed-rate leases) to "investment" products (short-term interest-only leases with teaser rates, never intended to be carried to maturity.) But this wasn't made clear to potential buyers.

So people would walk in and ask "what loan can I get?" with the expectation that the loan officer was taking into account their financial portfolio and their intended goals. Instead, the loan officer just gave them the same interest-only 100%-finance ARM that she gave everyone else, because the best option is the one with the lowest monthly payment right? And so these potential buyers assume that the loan officer--who they are paying to work for them--has offered them the best deal for them, and they sign up to it.

****

One big problem that banks are having now is that it's obvious that most of these ARM loans are never going to be repaid--and that as soon as the high rate kicks in, the homeowner will just walk away. So the bank is going to have to re-value the loan as having a much lower rate of return than it originally advertised; which is a problem, because it probably went out and got a loan of its own, using that ARM loan as collateral.

This situation is not made easier by free-market zealots screaming about how "you signed a contract! You have to pay! You signed a contract and you have to pay! Pay! Contract! You signed!"

Probably to curb day traders and people who are getting nervous and might panic and take out a bunch of stock. The market is almost at the same level as last friday. It's quite insane. Monday will bring in all the details. Too bad the government basically broke the constitution to do this.

Man, thank god for this thread. I have a less vague understanding of things now.

I know the bailout keeps us from an immediate "Oh fuck, BAIL ON AMERICA" moment, but it sucks that the bailout is essentially letting the guys at the top who have already put hundreds of thousands of people in a bad spot and made a fat profit off it themselves continue running things. Does the government bailout of AIG give the government any influence over how AIG conducts business from here on out? Or did they just hand them a check and say "We trust you'll figure this out."

[quote="MCBurnett"]I know the bailout keeps us from an immediate "Oh fuck, BAIL ON AMERICA" moment, but it sucks that the bailout is essentially letting the guys at the top who have already put hundreds of thousands of people in a bad spot and made a fat profit off it themselves continue running things.

That's the thing, it's not CEOs and bigwigs who made the money this time, but unscrupulous real estate agents and mortgage agents. The small fish are the ones who ripped off the system this time.

This is why people need information, rules, and capable oversight by a neutral third party.

While this may be true, I fail to see how the federal government can be considered a "neutral" in these matters. The government also buys, sells, and trades in bonds through institutions like the Federal Reserve, doesn't it? They're acting in their own self-interest as much as they are acting out of concern for the common citizen, aren't they?

Grumps, we missed you.

You blinked out of existence and then came back. A year has passed. Haven't you noticed?

[quote="Gokiburi_Chachacha"]

This is why people need information, rules, and capable oversight by a neutral third party.

While this may be true, I fail to see how the federal government can be considered a "neutral" in these matters. The government also buys, sells, and trades in bonds through institutions like the Federal Reserve, doesn't it? They're acting in their own self-interest as much as they are acting out of concern for the common citizen, aren't they?

I understand the Fed is a sort of public/private hybrid, though the nuances and hierarchies are somewhat beyond me. As an agent of the government, I'm not sure I agree that it has self-interest if it is simply acting on behalf of its citizens. At worst, isn't it a private entity whose welfare is linked to the health of the economy? I mean, it's basically there to prevent banking crises. Whether or not it can actually accomplish this is up for debate, though. I may misunderstand you completely, since this sounds like a "government boogeyman bad" strawman.

Err, I'm still unable to determine the point you're making. You seem to say that government is a self-perpetuating entity that will prefer its own survival over that of the average taxpayer (assuming those interests are divergent). But then you say you're afraid that the commercial sector will begin to control government as a result of the buyout?

When I hear about the absorption of Fannie Mae and Freddie Mac, or when I hear about the government pouring 85 billion dollars into AIG in exchange for an ownership stake, it concerns me.

It concerns me, too, but I don't know if we're on the same page. If the private sector can play gamble at the no-limit table, it should be ready to get hit hard when they get careless. If they're operating with a government safety net, then we have the worst of all possible worlds. At any rate, you need to be a little more specific, a pet peeve of mine is people casting big government as an indeterminate black cloud that is out to get us. There are arguments to be made against federalism, or regulation, but these generalizations aren't it. Furthermore, I'm not even sure that you're arguing against regulation, since you seem to imply you're for it at the end? The survival of the federal government is not really in jeopardy for your social organism argument to be relevant in this situation. But even if that were the case, and the US government was just another huge corporation throwing its economic weight around, it still answers to taxpayers and voters whose interest is in their own well being, while corporations answer to shareholders, whose interest is in the price of their stock.

I don't want to put words in your mouth, but I think you might be saying the federal government should not be in any business other than the things it strictly needs to be doing, and that's fair. I am 100% against corporate welfare. I'd say screw the bailout and let the whole goddamn thing burn, but that's probably not in anyone's best interest. My view is that corporations aren't evil, they're just huge organisms whose sole purpose is to make money by whatever means possible. They shouldn't be trusted any more than the scorpion in the parable, and they certainly shouldn't get rewarded for poor judgment. Free market capitalism is a great system, and it usually works, but in the degenerate cases where it isn't, regulation is the answer.

Yah, point of order, PAUL WHAT ARE YOU TALKING ABOUT?
If you want to have a macro abstract political discussion about the ontology of government and whether it has the capacity for neutrality given that it is made up of individuals just say so! Just not in the context of a discussion of the current economic crisis, with all its totally definable contours based on completely empirical observations. How about you start arguing about the social contract! (social contracts are totally for 18th centrury enlightenment noobs). But ahem, yes, I agree in that I am confused...gov oversight is in no way perfect, but it is what we have, no?

As for my lack of ranting, you can take your pick: either blame my lots of school work, the fact that i have friends from israel and california visiting, or you can try to blame robobastard for not successfully baiting me into long thread-derailing political vitriol...oh wait, that actually happened recently, I think i might remember doing that last week, although that may have been a drunken delusion. If you want rants, I have em, in SPADES. I love that expression, I also love the game spades, although I forget how to play. Somehow every single fucking person I know right now loathes playing cards. Which is terrible...for me.

Yeah, grumps has been around; I think that kn just tuned out when the discussion got all political. PS DRILL BABY DRILL

(actually don't. Invest in space-based solar power instead, which is better in both short- and long-term. Although you have to make sure that the space colonies don't declare independence and bombard the planet with asteroids like happens in "Hardwired".)

"I do think there should be regulations to prevent the sort of runaway speculation at the heart of this present economic contraction."

Actually, there were. Banning short-sales is actually not new; it's how things used to be. From 1929 up until last year investors could only short-sell if the stock price was rising. Mutual funds were banned from doing it at all until 1997.

Was in random but it has it's place here too.

http://gawker.com/5054512/letterman-pummels-mccain

Theres a 9 minute version if you want to watch all of it, but he basically ripped on McCain whenever he could.

I came into the office early so I can get home in time to see whatever happens. I'm going to bake mac n' cheese with panko and bacon crust and drink expensive beer and yell at the tv until my neighbors call the police. I'm going to be disappointed if nothing airs.

http://farm4.static.flickr.com/3108/2889662481_afa50aa916.jpg

[quote="karaokeninja"]Is there a fuckedbank.com like we used to have fuckedcompany.com in the dotcom collapse?

Oh man I used to be addicted to fuckedcompany and luckedcompany.com . I wonder what happened to Pud ?

[quote="The Joel"][quote="karaokeninja"]Is there a fuckedbank.com like we used to have fuckedcompany.com in the dotcom collapse?

From what I hear that could be all of them.

Does anyone else feel pretty well detached from all this? I could probably lose my job as soon as someone else, but for all the dire news I just don't seem to care.I think it may affect us in the long run (i.e. - loan, mortgage for a house, etc). In the short run, it may push spending down and affect company payrolls and thus us. Other than that, I don't think this will affect people who have been good at saving and avoiding reliance upon their credit to maintain their lifestyles.