W...@I...com wrote:
> On Mon, 6 Oct 2008 11:03:12 -0700 (PDT), w...@g...com wrote:
>
>> Lehman's Richard Fuld, during this morning's congressional hearings,
>> mentioned the pressure re: giving mortgages to previously unqualified
>> people, read mostly Blacks. And Wells Fargo boasting about mortgages
>> for illegal aliens.
>
> That's a cop out by Lehman.

No, it's not. Leverage, derivatives, CDSs, et all ultimately had to be
backed by *something*. I suspect we agree that borrowing 30 dollars for
each dollar of asset is ill-advised; however, the house of cards doesn't
tumble down unless that dollar of asset value turns out to be $.20,
which is what has occurred. When you make loans to people who can't pay
because of the noble but unwise desire to increase homeownership, you
inflate prices, increase risk, and insure a nightmare someplace in the
future.

Here's a quote from the Times back in 1999 that is chillingly predictive:

"In moving, even tentatively, into this new area of lending [subprime
loans to unqualified buyers], Fannie Mae is taking on significantly more
risk, which may not pose any difficulties during flush economic times.
But the government-subsidized corporation may run into trouble in an
economic downturn, prompting a government rescue similar to that of the
savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another
thrift industry growing up around us,'' said Peter Wallison a resident
fellow at the American Enterprise Institute. ''If they fail, the
government will have to step up and bail them out the way it stepped up
and bailed out the thrift industry.''"

http://query.nytimes.com/gst/fullpage.html?res=9C0DE
7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=
1

Here's an interesting article in the City Journal outlining the entire
problem. The chilling part is that it was written in 2000:

http://www.city-journal.org/html/10_1_the_trillion_d
ollar.html

It has nothing to do with leverage,
> derivatives, CDS's, or the other side bets made by Wall Street which
> caused the mess. Nobody in Congress understands this system. They'd
> best get somebody to explain it to them.
>
>> The question is; was this sort of an alliance between the liberals who
>> pressured the mortgage
>> industry to accept worthless paper. Or, in response to liberal/
>> governmental pressure, did the banks jump on the bandwagon
>> anticipating an ultimate end to the ponzi scheme?
>
> None of the above. You conveniently forget that the repeal of Glass-
> Steagall and the following legislation sponsored by Gramm opened the
> door fully, where before it had been slightly ajar.

Glass-Steagall has nothing to do with this. NOTHING. If GS was in place,
(1) the mortgages still would have been securitized, (2) they still
would have been sold by the mortgage lenders, and (3) they still would
have been sold to financial services firms and packaged into CDO's.
There is ***NOTHING*** in Glass Steagall to prevent that from occurring.
NOTHING. This is a leftist canard.

However, if GS was still in place, we'd be in even worse shape than we
are now, because weak financial services institutions would be
restricted from merging, thus strenghening their balance sheets.

Further, let's understand that when the Gramm-Leach-Riley bill was
passed, it earned 370 votes in the House, 93 votes in the Senate,
Clinton signed it, and just recently (three weeks ago) reaffirmed to
Maria Bartiromo in an interview that he believes it was the right thing
to do. The repeal of GS was WHOLLY a bipartisan matter.

Here's some relevant information from FactCheck.org:

"The truth is, however, the Gramm-Leach-Bliley Act had little if
anything to do with the current crisis. In fact, economists on both
sides of the political spectrum have suggested that the act has probably
made the crisis less severe than it might otherwise have been."

"Actually, deregulated banks were not the major culprits in the current
debacle. Bank of America, Citigroup, Wells Fargo and J.P. Morgan Chase
have weathered the financial crisis in reasonably good shape, while Bear
Stearns collapsed and Lehman Brothers has entered bankruptcy, to name
but two of the investment banks which had remained independent despite
the repeal of Glass-Steagall. "

Bill Clinton, when asked about the subject:

" Indeed, one of the things that has helped stabilize the current
situation as much as it has is the purchase of Merrill Lynch by Bank of
America, which was much smoother than it would have been if I hadn't
signed that bill. ...You know, Phil Gramm and I disagreed on a lot of
things, but he can't possibly be wrong about everything. On the
Glass-Steagall thing, like I said, if you could demonstrate to me that
it was a mistake, I'd be glad to look at the evidence. But I can't blame
[the Republicans]. This wasn't something they forced me into."


If GS was in place today, what we're experiencing would be worse.

> After reading your
> post - derivatives, CDS's, and other "insurance" which leveraged the
> US housing market to the hilt are above your pay grade. You can go
> back to Limbaugh or Hannity now.

What the HELL are you talking about? You wiffed on the cause of the
crisis --- it's declining home prices and resulting foreclosures, mostly
by unqualified buyers. Leverage and derivatives make the situation
worse, but neither are the root cause. You wiffed on Glass Steagall and
it's (non)involvement in this whole issue, and you wiffed on the
bipartisan nature of the Gramm Leach Biley.

Hell, with a record like that, Limbaugh and Hannity would be way over
your head.

JG


>
> WB Yeats