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The View From Inside a DepressionUser Forum Topic
Submitted by enron_by_the_sea on October 19, 2009 - 12:18pm
Came across this interesting book review from New York Times. I wanted to share for those who are interested. http://www.nytimes.com/2009/10/17/busine... "In January 1931, a lawyer named Benjamin Roth, 38 years old, solidly Republican, a solo practitioner in Youngstown, Ohio, decided to start a diary. Realizing that he was “living through an historic thing that will long be remembered” — as he put it in one early entry — he wanted to keep a record for posterity." "Instead, every few days — or every few weeks during some stretches — Mr. Roth jotted down his thoughts and fears as the Depression deepened. “Banks are absolutely terrible in their insistence on payments of notes and mortgages,” he wrote in 1931. “It is the old story of lending you an umbrella when the sun is shining and then demanding it back when it rains.” "Mr. Roth is skeptical of President Franklin D. Roosevelt’s New Deal programs, and worries that the president’s fondness for deficit spending will ultimately be disastrous. He keeps thinking inflation is right around the corner. He worries about the rise of Hitler. He writes about gangs of farmers who threaten sheriffs, judges and anyone else who tries to foreclose on a farm. He watches the rise of unions, another trend he finds troubling." "But an even more wrenching example of his groping in the dark is his desperate wish for the Depression to end. His diaries are filled with tentative predictions, usually based on experts’ opinions, that the worst is over. Yet every time he thinks that, he turns out to be wrong. He begins studying the charts of previous Depressions to see how long they lasted. “I have done considerable reading about the depressions of 1837 and 1873 and I am struck by the similarity to the present crisis,” he writes in early 1933. “If history repeats itself then we still have 2 or 3 years of bad times ahead.” At" various points in the early 1930s, the stock market spikes — and he starts to think it’s a good time to buy stocks. Indeed, he writes, many experts are advising people to get into the market, and some of his wealthier friends do so. But six months later, the experts invariably turn out to be wrong, and his friends wind up losing their money. During the Depression, optimism was ruinous."
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Mr. Roth sounds like the Republicans of today.
As much as I hate the bailout programs, I feel like there is no other choice.
I personally would rather the money went to social programs like extending unemployment benefit, childcare, etc... than to the banks.
But despite the pronouncements by Republican leaders, the Republican business people I know all hope for MORE government intervention to keep the economy growing, at least for the time being.
Sounds like the extreme Republicans. Obama as Hitler? That's laughable.
I think that deflation is still in the cards. Look at food prices and airline tickets.
Inflation is still some time away.
I would love for Obama to turn off the spigot immediately. That will cause a crash that would allow those of us with wherewithal to profit.
But I understand that for the economy's sake more government support is needed. But still, that pisses me off because it's allowing those smug real estate people to hang on.
http://www.youtube.com/watch?v=pFMgwL-Tq...
Brian, Brian, Brian. I'm amused at your attempt to get the real estate guys riled up. But you are flat wrong to think that more government support will help the economy.
Pick up a book on economics, Thomas Sowell has some good fast reads. You will learn that government spending is simply someone else deciding how to your money should be spent. Is the government so much smarter that the populace? If you agree with this premise that you wish for a socialist system, which incidentally, never flourish in the long run. Read that econ book.
Our nation was founded upon personal independence and drive to succeed. Let the free market prevail and everyone benifits.
Lets take a look at our upcoming Xmas shopping season and the early winter cold upon the midwest and east. You will have to agree that without jobs it's going to be a hardship for those families to heat their homes and shop for gifts.
So if the government really wanted to help them, they could relax the government roadblocks to allowing cheaper energy. Drilling, nuclear, etc. That alone would put more money in everyone's pocket that they would then spend thus growing the economy.
Just redistributing wealth through social programs is much akin to giving you kid an allowance. It doesn't motivate him to find a way to earn more.
Enough for now.
Someone forgot history. Compare the years of Adolf Hitler's rise to power with the Great Depression.
Great Depression October 29, 1929 to late 1930s,early 1940s.
Hitler;
joined Nazi Party 1919
Leader of National Socialist German Workers Party 1921
Coup Attempt 1923
Chancellor of Germany 1933
Rearmament of Germany followed by invading Poland 1939.
There is no association being made. Many people were getting concerned about Adolf Hitler's rise to power during the Great Depression.
Could be. Many people forget that part of inflation is tied to the price in housing. If people see their house going up in value, many will re-fi with equity out and then spend that money. If house prices are not going up.. then this inflationary behavior does not occur.
It depends upon which spigot. If the TARP was not done, all credit would have dried up.. including corporate revolving lines of credit. Corporate lines of credit are used to handle payroll and other expenses and to smooth out the bursty nature of sales in the corporate world.
Personally, I would really like to see the RE speculators get 'fried'. Unfortunately this economy is all tied together. One thing that would really reduce the speculation is for the Capital Gains exemption on Real Estate to be removed. I would love to have Capital Gains exemption on any stock held more than 2 years.. but I don't. Why is RE an exemption? The second would be requiring down payments when buying a property. This would be similar to margin requirements that were phased in by the SEC after the Great Depression. I would also like to see broker licensing and regulation (for both RE and Mortgage) along the lines of regulations that the SEC added to stock broker dealers. Presently, I don't think there is any regulation that prevents a re-agent from inserting an intermediary buyer between the real seller of a property and the real buyer the broker is supposed to represent. There is for stock and commodity investments and violating that rule can get you banned for life.
Just read the post from the real estate bulls or somewhat optimistic folks here.
Everyone agrees that government support is what kept real estate from crashing.
Nobody is arguing that the market is rebounding on its own.
So if the government really wanted to help them, they could relax the government roadblocks to allowing cheaper energy. Drilling, nuclear, etc. That alone would put more money in everyone's pocket that they would then spend thus growing the economy.
For the long term, you are right.
But collapsing government spending during a recession is asking for trouble.
Immediately, if you expand government spending during the recession, that money has got to go somewhere. I would rather the money went into the pockets of those who need it most and will spend it fastest than in the pockets of those who will horde it and speculate.
I would rather WalMart sales go up, thanks to spending at the lower socio-economic levels, than stocks markets increase because the banks have to park their bailout money somewhere.
Pick up a book on economics, Thomas Sowell has some good fast reads. You will learn that government spending is simply someone else deciding how to your money should be spent. Is the government so much smarter that the populace? If you agree with this premise that you wish for a socialist system, which incidentally, never flourish in the long run. Read that econ book.
Our nation was founded upon personal independence and drive to succeed. Let the free market prevail and everyone benifits.
Lets take a look at our upcoming Xmas shopping season and the early winter cold upon the midwest and east. You will have to agree that without jobs it's going to be a hardship for those families to heat their homes and shop for gifts.
So if the government really wanted to help them, they could relax the government roadblocks to allowing cheaper energy. Drilling, nuclear, etc. That alone would put more money in everyone's pocket that they would then spend thus growing the economy.
Just redistributing wealth through social programs is much akin to giving you kid an allowance. It doesn't motivate him to find a way to earn more.
Enough for now.
This post is not even relevant to the government/Fed stimulus. This one big right-wing radio talking point.
What specifically is wrong with what the Federal Reserve is doing, which is a privately controlled entity.
If you are going to talk about what is wrong with economic recovery plans, which is basically monetary policy. At least show that you understand what is being done.
The government spending outside of direct federal reserve money is <7% of stimulus money AND only 10% of that has been spent.
So your whole premise falls flat on it's face.
Actually it is closer to taking money from the kid that decided to go out and get a summer job and giving it to the kid who decided to do a 'beach bum summer'..
While 'redistributing wealth' has benefits, it also has some severe costs. The act of redistribution does not create value.. just 'redistributes' it. The act of redistribution is also a powerful dis-incentive to those that sacrificed their own time to create it. I bet that kid who decided to go for a summer job would have preferred to do a 'beach bum summer'.
Redistribution of wealth can have a beneficial effect in offsetting the powers of scale when dealing with income. As a person earns successively more, the percentage of that income going to survival level necessities decreases. This leaves discretionary income for many purposes. Taking a small amount of this 'excess' is not that much a problem, but removing a large portion would disincentivize the person from putting out the effort to produce this income.
There is one area that government spending is useful. Remember, not all spending comes from taxes.. some comes from 'printing' as well. One area that government spending is useful is in recovery from recessions or preventions of depressions. Generally, the government should be paying down its borrowed money when the economy is healthy or becoming 'overheated'. The government needs to do the reverse (spending money) when times get tight. It controls the currency and needs to be a balancing force against the extremities of the market. Unfortunately, not many politicians seem to have the self control to 'save for a rainy day'.
Personally, I would really like to see the RE speculators get 'fried'. Unfortunately this economy is all tied together. One thing that would really reduce the speculation is for the Capital Gains exemption on Real Estate to be removed.
I agree. Crispy fried would be good.
The second would be requiring down payments when buying a property. This would be similar to margin requirements that were phased in by the SEC after the Great Depression. I would also like to see broker licensing and regulation (for both RE and Mortgage) along the lines of regulations that the SEC added to stock broker dealers. Presently, I don't think there is any regulation that prevents a re-agent from inserting an intermediary buyer between the real seller of a property and the real buyer the broker is supposed to represent. There is for stock and commodity investments and violating that rule can get you banned for life.
I also agree.
The Republicans real estate folks will never admit that they are operating in a socialist market with countless subsidies that artificially prop up real estate prices and magnify inefficiencies.
I would love the estate estate Republicans to lobby for the removal of real estate support and for letting the "real" free market flourish.
I know that it will never happen.
There is one area that government spending is useful. Remember, not all spending comes from taxes.. some comes from 'printing' as well. One area that government spending is useful is in recovery from recessions or preventions of depressions. Generally, the government should be paying down its borrowed money when the economy is healthy or becoming 'overheated'. The government needs to do the reverse (spending money) when times get tight. It controls the currency and needs to be a balancing force against the extremities of the market. Unfortunately, not many politicians seem to have the self control to 'save for a rainy day'.
That was my point.
The bailout money is not coming from redistribution at this point. It's coming from printing.
Look at Norway. They are doing an excellent job at saving for the rainy days.
The Federal Reserve plans are very simple. Mortgage the country to try and sustain the unsustainable by any means necessary. To talk about government spending and misallocation of funds misses what is being done, which is Wall Street hijacking our government to keep a debt ponzi-scheme going. It is a ponzi-scheme by definition.
Still, what the Banks said would be fixed, when Paulson threatened us with martial law has not been done. CREDIT IS STILL CONTRACTING, which is the driver of all economic woes.
http://www.zerohedge.com/article/has-gov...
What I am saying is that the government's actions to date have not fixed the underlying problems or helped stabilize the economy. The government has been doing all of the wrong things and made the situation worse by, among other things:
(1) Throwing trillions of dollars at the "too big to fails", instead of admitting that many of them are insolvent
(2) Undermining trust of nations all over the world in the American economy
(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
(4) Attempting to restart high levels of leverage and securitization
(5) Failing to take real measures to decrease employment and increase manufacturing
(6) Creating an enormous debt overhang and trashing our currency
Slight problem here.. almost all RE folks want the market propped up.. and not all RE folks are Republicans. RE brokers make a percentage of the sale (6% for sole broker, 3% on split commission). The higher the RE price.. the more they make.. therefore, regardless of party affiliation, they tend to want higher RE prices.
Some Republicans are taking the reverse position and sold of RE or are taking a short position on Real Estate related companies (ie. builders).
Considering that we have a Democratic President and House and Senate are largely Democratic... why? Three reasons.. Pelosi, Raines, Franks.. who are 'staunch' Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
Enough for now.
I am in favor of not feeding the hungry, but teaching them to fish.
Arraya - thanks for the link!
Why not let the big banks fail, break them up, and sell the chunks to the more responsible banks? And if those guys can't afford it then give the taxpayers $$ to aid the transaction?
Yes it would be another bailout but at least the financial future would be built on a banking system that isn't a casino. Am I missing something here? Of course this a late question and mostly rhetorical.
Besides, when the AT&T monopoly was broken up phone lines didn't go dead.
Considering that we have a Democratic President and House and Senate are largely Democratic... why? Three reasons.. Pelosi, Raines, Franks.. who are 'staunch' Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
Sure, Democrats enabled the banks and gave them exactly what they wanted too. Still, talking about democrats NOT regulating is funny. Usually if they try to regulate anything they get dog-piled by the free-market crusaders. Now, they are getting criticized for not regulating. Too funny.
Most real estate people I know in San Diego are Republicans.
I bet that the Democrats would make a deal. Sacrifice real estate for health care.
same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
Good point but the GSE contributed maybe 3% to the crash.
The crash first occurred with non-GSE backed subprime loans, and they infected the GSE loans. And now the crash is infecting the middle to upper end loans.
Community reinvestment loans were never the problem as Rush likes to claim. Speculation on flip properties, whether the flippers were residents or not, was the problem.
Of course that would have never happened if Wall Street didn't make the money available.
Some of it still needs to contract. There was some stupid lending. I am still seeing lending being done. My Mother is currently re-financing the house to lock in a good rate. I was showing her how to use the fact that her LTV is around 18% to strong-arm the banks. She is looking at a 4.113% 5yr fixed, LIBOR based ARM with a 9% cap as well as a 5.113% Fixed 30 year. I am trying to convince her to go Fixed because I suspect the interest rates are going to go up in about 1 year.
I suspect that people in general, got used to stupid lending... and now that lending is not so stupid, they see it as overtightening.
Some of the too big to fails.. are really solvent, on the other hand others, ie AIG are really toast. Many of these 'too big to fails' are paying back their TARP money (which was a loan in comparison to the following stimulus money) AIG will probably never be able to repay its TARP money. Freddie probably will, unless they sacrifice their recovery to prop up house prices..
http://finance.yahoo.com/news/Government...
Maybe this is why the existing conservator was replaced..
Fannie Mae has a bigger risk of failing than Freddie.
One of the biggest problems were the SIVs which were completely opaque. This makes it hard to understand the condition of a borrower. There was the potential of all sorts of toxic waste in those SIVs. Credit Default Swaps should be treated as a insurance of margin product.. which is what it really is.
I think you meant to say 'decrease unemployment'..
This is one of the reasons that I felt that TARP money should have come from 'printed' money and not Treasury bills. The TARP money has to be repaid.. and to make inflation neutral, the fed only has to collect the interest and 'destroy' the principal when it gets returned. The result would have been a significantly smaller debt overhang.
I am in favor of not feeding the hungry, but teaching them to fish.
Maybe forcing them to fish would be a good thing too.
That's why I support the military. Not that we need the big guns, but because it's a huge jobs program and social experiment in racial integration, socialized medicine and enlistment-to-grave type nanny state.
Actually the contributed a lot more.. Just look at how much TARP money they have taken (almost 100Bil with a cap of 400Bil-fed expecting more?) compared to;
Goldman Sachs - 10Bil - paid back
JPMorgan - 25Bil - paid back
Morgan Stanley - 10Bil - paid back
Wells Fargo - 25Bil
BofA - 45Bil (15Bil initially, 10B inherited from Merrill, 20Bil additional- probably to grease Merrill shotgun wedding).
Fannie = 45Bil
Freddie = 50Bil
GSE's also had subprime.. and the crash did not start with the loans.. it started with the Credit Default Swaps that occurred as loans went bad. The Credit Default Swaps were not being properly priced to risk of default. Take a look at how much AIG took in on TARP (69Bil in warrants, 37.8Bil in more loans just approved with an 85Bil Credit line).. AIG is an insurance company, not a bank. There was a mindset that RE always goes up, so a loan at 100%LTV was good because you could always resell the property to cover the loan irregardless of FICO or ability to pay.
Freddie had over 25Bil sub-prime loans. I can't find the amount that Fannie had because they often bought securitized loans.. not actual loans. One thing to note is that Fannie's default rate is almost 2x Freddies.
You stated 'infected the GSE loans'.. so just how do you 'infect' a loan? It doesn't work that way. Loans don't have viruses. Either the loan is written well or written poorly. It is money, value of the property and the ability to repay, period(to copy a word you used - loans are fairly black and white). This is why banks like New York Mellon repaid TARP quickly and others are taking longer or went under. Freddie and Fannie were doing 100%+ LTVs during the 'craze' and many of these fit under the community reinvestment act. The increased interest rate on loans offsets the risk of default. CRA tried to violate that tenant. It also pushed Fannie and Freddie outside of their traditional 80% max LTV, high FICO score area.
Rush is actually partially right.. the problem with Rush is that the truth gets trampled in his rush to the 'goal post', so I completely ignore him. He takes a small grain of truth and then blows it up all out of proportion.. ignoring everything else to the contrary.
Flippers were actually a very small part of the problem. Who buys the property from the flipper after the inflated price? If no-one does, flippers don't survive. Another part of the problem was the RE brokers pumping that 'you have to buy now or forever be priced out!'. This caused people to get caught up in the moment and taking un-necessary risk, combined with really funky loans to try to keep it all going. Add in mortgage brokers steering people into improper loans with high kickbacks to the mortgage broker, mortgage brokers mis-stating income on the loans so that people could qualify... and you have a disaster.
I am in favor of not feeding the hungry, but teaching them to fish.
Maybe forcing them to fish would be a good thing too.
That's why I support the military. Not that we need the big guns, but because it's a huge jobs program and social experiment in racial integration, socialized medicine and enlistment-to-grave type nanny state.
IMHO the most successful institution at racial integration.
Actually the evidence of Raines, Pelosi and Franks subverting the bills was on u-tube.. and was taken down by u-tube for copyright. I am waiting for someone to repost the captured video from the House and Senate floor... BTW, Raines used to be CEO of Fannie Mae...
Goldman owes more than Tarp.
$10 Billion in TARP
$11 Billion from the Fed
$30 Billion from the FDIC
$13 Billion from AIG
GSEs are stuffed with bad Wall Street debt at the expense of the tax payer and Fannie/Freddie keep home prices high when there supposed to do the opposite. They are vehicles for wall street to get rid off their losses and to keep their ponzi scheme going.
Actually the evidence of Raines, Pelosi and Franks subverting the bills was on u-tube.. and was taken down by u-tube for copyright. I am waiting for someone to repost the captured video from the House and Senate floor... BTW, Raines used to be CEO of Fannie Mae...
Arrest them, I could care less. There all worthless.
This reference is not accurate. The only thing that they can be 'claimed' to owe is from the Fed.
10Bil TARP was repaid.
FDIC is an insurance product paid by Goldman.. and FDIC got called on and owed.
AIG was for Credit Default Swaps... remember there is counterparty risk on CDSs. Someone is insuring that the loan does not go bad. Goldman recognized that mortgages were starting to go south and got rid of whatever toxic product they could followed by insuring the rest.
Bailout links
http://bailout.propublica.org/main/list/...
http://bailout.propublica.org/main/list/...
Unfortunately, being a Congressman/woman.. they have Congressional immunity (sick)..
This reference is not accurate. The only thing that they can be 'claimed' to owe is from the Fed.
10Bil TARP was repaid.
FDIC is an insurance product paid by Goldman.. and FDIC got called on and owed.
AIG was for Credit Default Swaps... remember there is counterparty risk on CDSs. Someone is insuring that the loan does not go bad. Goldman recognized that mortgages were starting to go south and got rid of whatever toxic product they could followed by insuring the rest.
Bailout links
http://bailout.propublica.org/main/list/...
http://bailout.propublica.org/main/list/refunds
Semantics, it all came from the taxpayer. Specifically, the AIG went directly from Tarp to Goldman. Oh, but it was default swaps so it's ok????
If it was not for the Fed taking over the MBS market with their trillion $+ swap program they would ALL be kaput. So they all get billions of dollars in bonuses of freshly printed money. I'm not sure how those swaps affect the tax payer but it still stinks. Their main product they have NO market for and they get to pretend that their business is still real. It's not, it's a phony as there books.
The semantics are what is important.. which side of the loan.. who owes who money.. its all semantics. The only way to prevent this transfer was to have AIG go under.. which would have caused more than $137Billion in underwritten CDS to go under.. affecting several other banks that also bought CDSs from AIG.
Specifically, AIG was insuring loans that Goldman had underwritten. Goldman was paying AIG money to do this. Goldman thought there was a possibility of the loans going bad, so they bought insurance on the principal of the loan.. this loan is known as a Credit Default Swap. Same semantic that brought down Bear Stearns.. they were on the wrong end of the Credit Default Swap.
My personal opinion is that the Fed should have allowed AIG to fail, to take possession of AIG and make the CDS(s) that it did originate good. Sell off the other parts of AIG to clear up the loss. Several banks understood the risk of the loss of principal and took out insurance, paying into AIG so that if the loan went bad, they could at least get their principal back.
Explained well uco. Did you read that Rolling Stone link that was posted awhile back on AIG? Sorry to trip the thread up. Anyways like I said, you explained it well.
I didn't read the Rolling Stones link, do you have a copy of the link or know where it was? I have just been paying attention to where the money is going, ignoring the politics(which I consider a distraction like the games in the Roman Colosseum). I always try to explain my position, particularly when there is a lot of anger floating around.
People want these big bloated institutions to fail, in a kind of taxpayer revenge feeling. Unfortunately many don't realize that if they have a pension, health insurance, retirement investments in stock funds.. that taking down some of these big institutions may also take down their own future. Screw around with credit.. or make banks not want to loan.. investors to buy bonds and there may go people's jobs. This whole credit problem has to be unwound carefully.