Gov't Must Not Escape Blame In Whodunits

Investors.com ^ | February 22, 2010 | The great THOMAS SOWELL

[Kaslin]

During bad times, the blame game is the biggest game in Washington. Wall Street "greed" or "predatory" lenders seem to be favorite targets to blame for our current economic woes.

When government policy is mentioned at all in handing out blame, it is usually blamed for not imposing enough regulation on the private sector. But there is still the question of whether any of these explanations can stand up under scrutiny.

Take Wall Street "greed." Is there any evidence that people on Wall Street were any less interested in making money during all the decades and generations when investments in housing were among the safest investments around? If their greed did not bring on an economic disaster before, why would it bring it on now?

As for lenders, how could they have expected to satisfy their greed by lending to people who were not likely to repay them?

The one agency of government that is widely blamed is the Federal Reserve system — which still keeps the heat away from elected politicians. Nor is the Fed completely blameless. It kept interest rates extremely low for years. That undoubtedly contributed to an increased demand for housing, since lower interest rates mean lower monthly mortgage payments.

But an increased demand for housing does not automatically mean higher housing prices. In places where supply is free to rise to meet demand, such as Manhattan in the 1950s or Las Vegas in the 1980s, increased demand simply led to more housing units being built, without an increase in real prices — that is, money prices adjusted for inflation

[Kaslin]

Ping

[parsifal]

“As for lenders, how could they have expected to satisfy their greed by lending to people who were not likely to repay them?”

Here’s how. You sell the bad loan to someone after you have securitized it. You do this with an AAA rating. You make money off the sale. Then you buy “insurance” from AIG on the loan, hoping that it fails, so when the person you sold it to, comes back for the risk you retained, you have insurance to pay it back.

And, you make more than one bet on it failing. That way some of your “insurance proceeds” are nearly all profit.

And if you don’t believe me, believe the guy who wrote “Liar’s Poker” in this tale of Steven Eisman, who figured it out:

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom/?print=true%22

parsy, who thinks T. Sowell should have done at least some homework on this

[jazusamo]

Thanks for the ping, Kaslin.

*PING*
Thomas Sowell

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[parsifal]

And here are a couple of videos that explain in very simple terms what went down. What is missing, is that some of these gamblers needed bad loans so the deals would crash and they would get insurance and make gazillions. So when you see the part about the 3 people betting on the house, remember they had a good reason to think it was going to be destroyed. That’s why they needed “bad” loans.

http://www.youtube.com/watch?v=Mfe7wAMhy_Y

http://www.youtube.com/watch?v=d3MwSmSsgKo&feature=related

parsy

[stephenjohnbanker]

Sowell did the homework. This is too complex for the average Joe. Hell, even many FReepers cannot understand the scam.

[parsifal]

It is complex and twisted. The Rolling Stone guy had a good take on it. I had missed this article and just found it. He blames government AND Wall Street.

http://trueslant.com/matttaibbi/2010/01/04/fannie-freddie-and-the-new-red-and-blue/

parsy, who hopes you enjoy

[stephenjohnbanker]

I read Taibbi a month or 2 ago. His take is pretty accurate.

“He blames government AND Wall Street.”

Govt: “ Here is a credit card with no limit. Enjoy!”

Wall Street: “ Are you $hittin me??”

[stephenjohnbanker]

Thanks for the CDS videos!

[parsifal]

LOL! Credit card was part of it. Heck, they are still doing that. But also, they de-regulated as in Glass Steagall. Failed to regulate derivatives properly. And over-rode state laws on “Bucket Shops” and insurable interests.

parsy, who thinks there should be mass prosecutions

[parsifal]

You’re welcome. I keep trying to find as simple an explanation for this mess as possible that doesn’t just gloss over the problem. Kinda difficult when lots of people on Wall Street don’t even understand a lot of derivatives.

parsy

[stephenjohnbanker]

“parsy, who thinks there should be mass prosecutions”

SJB, who has been a securities dealer for 30 years, and agrees with Parsy.

[stephenjohnbanker]

“Kinda difficult when lots of people on Wall Street don’t even understand a lot of derivatives.”

I now know enough about them to state that they should be outlawed. The very nature of them lends itself to dishonesty, and fraud.

[stephenjohnbanker]

And Lordy Lordy, was there ever fraud!

[parsifal]

And the speculating. You know, when you can bet on someone else tanking, and you don’t have any insurable interest, that’s just asking for it.

I forget who said it, maybe Buffet or Volcker, that if we lived without them this long, they can’t be that necessary.

parsy

[stephenjohnbanker]

“And the speculating. “

Yep.

[publiusF27]

Interesting exchange.

publiusF27, who wishes more than 4 people had posted on this thread.

[stephenjohnbanker]

“publiusF27, who wishes more than 4 people had posted on this thread.”

I agree. Lets wake a few up

[Liz]

Zzzzzzzzzzzzzzzzzzzz.

"Who loves ya, baby. Smooch."

[stephenjohnbanker]

;-)