Monday, June 27, 2011

Monday Mashup (6/27/2011)

  • I had an item left over from last week that I guess I didn’t feel like getting to, so I’ll give it a shot now here…
    …the greatest responsibility for the collapse of the housing market and the near "Armageddon" of the American economy belongs to Fannie Mae and Freddie Mac and to the politicians who created and protected them. With a couple of prominent exceptions, the politicians were Democrats claiming to do good for the poor. Along the way, they enriched themselves and their friends, stuffed their campaign coffers, and resisted all attempts to enforce market discipline. When the inevitable collapse arrived, the entire economy suffered, but no one more than the poor.
    Yeah, I know this is about what you would expect from Mona Charen of; yet another zombie lie about how Fannie and Freddie supposedly are primarily to blame for the near-cratering of our economy.

    In response, I give you the following (here)…
    Fannie Mae and Freddie Mac did not, by themselves, cause the subprime mortgage crisis. Legislative attempts to rapidly wind down Fannie and Freddie will not prevent another recession. Worse yet, it could further harm the housing market.

    It was the preponderance of exotic loans in addition to subprime borrowers that made Fannie and Freddie's loan acquisitions so toxic.

    It is critical to understand, however, that because of regulations, they took on less of these loans than most banks. According to several analysts, they increased their acquisition of these loans to maintain market share in what had become a very competitive market.

    As GSEs, Fannie and Freddie weren't required to offset the size of their loan portfolio with enough capital from stock sales to cover it. This was a result of both their lobbying efforts and the fact that their loans were insured, so they felt they didn't need to. Instead, they used derivatives to hedge the interest-rate risk of their portfolios. When the value of the derivatives fell, so did their ability to insure loans. (Source: NYT, Fannie, Freddie and You, July 14, 2008).

    This exposure to derivatives proved their downfall, as it did for most banks. As housing prices fell, even qualified borrowers ended up owing more than the home was worth. If they needed to sell the house for any reason, there would lose less money by allowing the bank to foreclose. Borrowers in negative amortization and interest-only loans were in even worse shape. Even though subprime and Alt-A loans only made up 17% of Fannie and Freddie's portfolio, they were responsible for over half of their losses in 2007.

    Elimination of Fannie and Freddie will dramatically reduce the availability of mortgages and increase the cost. Banks have not, and would not, step in to guarantee mortgages. Studies have shown that, without Fannie and Freddie, mortgage interest rates could go as high as 9-10%. This would damage the housing market before it's had any chance to recover.
    As noted here, though, misinforming about the root causes of our current economic crisis is something that comes naturally for Charen (Fannie and Freddie are hardly perfect, but they were trying to hold onto their market share threatened by those primary market offenders and TARP beneficiaries who, of course, utterly escape blame in Charen’s column).

  • Also, this CNN story tells us that our dreaded 112th Congress, while it decried federal spending, paid out $6.1 million in bonuses to congressional staffers.

    I don’t have a problem with fair compensation for a hard day’s work, but I do have a problem when one of the most extreme offenders was elected by the racist-sign-and-funny-hat crowd but will still claim to burnish his tea party “bona fides.” As the story tells us…
    Rep. Dennis Ross, R-Florida, held a hearing on the subject in March, opening with a strong statement, "Our taxpayers can no longer be asked to foot the bill for these federal employees while watching their own salaries remain flat and their benefits erode."

    But as he criticized federal workers as being overpaid, Ross reported $8,750 in what looks like bonuses to his personal office staff. His office did not respond to a request for clarification and comment.
    Oh, and Ross also came up with the idea of selling off 70 percent of Utah that is federally owned (here); why he is interested in such a potential sale on the other side of the country, far away from his constituency, is something I cannot imagine.

  • In addition, I’ve noticed a great deal of wingnut harrumphing out on those Internet tubes over a segment on the Pledge of Allegiance during NBC’s recent coverage of the U.S. Open golf tournament (leading to this charming moment by Repug U.S. House Rep Todd Akin of Missouri). Apparently, the source of the outrage is the network’s omission of the phrase “under God” when reciting the Pledge, for which the network has apologized.

    I wonder if those who are complaining are aware of the fact that the “under God” phrase was only added to the Pledge in 1953 (and I also wonder if they’re aware of the “Bellamy salute” that used to be practiced when reciting the Pledge, which looked suspiciously like the salute given to a certain Nazi Germany Fuhrer, as noted here)?

  • Finally, The Moustache of Understanding was in rare form yesterday in the New York Times (here)…
    The most important truth about the Middle East: It only puts a smile on your face when it starts with them. If it doesn’t start with them, if they don’t have ownership of a new peace initiative, a battle or a struggle for good governance, no amount of U.S. troops kick-starting, cajoling or doling out money can make it work. And if it does start with them, they really don’t need or want us around for very long.
    I can’t think of a word to describe my astonishment upon reading that paragraph, considering that it also came from the person responsible for this.

    As for how the cold war ended, that’s easy. It ended when the two governments — the Soviet Union and Maoist China, which provided the funding and ideology propelling our enemies — collapsed. China had a peaceful internal transformation from Maoist Communism to capitalism, and the Soviet Union had a messy move from Marxism to capitalism. End of cold war.
    I realize that Friedman absolutely has a huge man crush on the country that is fast becoming the world’s premier economic power (aided in no small part by our stupidity in aiding that process particularly in the IT industry, at the expense of workers in this country), but I don’t sense much of anything that is “peaceful” about that nation (this provides the context Friedman chooses to ignore).

    Since then, we have increasingly found ourselves at war with another global movement: radical jihadist Islam. It is fed by money and ideology coming out of Saudi Arabia, Pakistan and Iran. The attack of 9/11 was basically a joint operation by Saudi and Pakistani nationals. The Marine and American Embassy bombings in Lebanon were believed to have been the work of Iranian agents. Yet we invaded Afghanistan and Iraq, because Saudi Arabia had oil, Pakistan had nukes and Iran was too big. We hoped that this war-by-bank-shot would lead to changes in all three countries. So far, it has not.
    Gosh, Mr. “The Mall Is Flat,” from what I recall, the most vocal media cheerleader for Dubya’s Not-So-Excellent Adventure In Iraq (his “war by bank shot” if you will) was one person…YOU!!!!

    As noted here, Friedman once said (infamously) that Democrats voted “with their noses plugged” for Al Gore and John Kerry when both ran for the White House.

    I wonder if he wrote this column in the same posture?
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