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'Bail Out Populism': The Mob is Storming the Wrong Castle

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posted on Sep, 26 2008 @ 06:43 PM
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Do you remember in the old black and white “Frankenstein” movie what happens when the townspeople get word about the monster in that big castle overlooking their fair town? They form a mob with pitch forks, torches, and angry people – and they are determined to overrun that castle!

In much the same way, the population over the past week or two has become aware of all the happenings on Wall Street. They’ve gathered their pitch forks, torches, and gotten angry – and they are going to take down those big evil corporations who started all this mess!

But wait. Perhaps you’re storming the wrong castle, townspeople.

I understand the confusion. All day everyday on every news outlet, we’ve heard that the federal government is giving a bailout to “wall street bankers” – and how dare they – we’re privatizing profits and socializing loss! Un-thinkable! This is a free market, corporations can’t do that!

Au contraire, fair townspeople. You’ve been lied to by the media. You see, the media has a narrative that they fashion in order to get viewers – populism. Appeal to the people – get them pissed, get them angry, and get them self-righteous. Its good for the ratings. Paint something as evil, and attack it. People will watch.

Unfortunately, the narrative is a lie. Government is not bailing out corporations – a bailout means that someone did something wrong, and is now getting a “get out of jail free card” without paying for the consequences. The problem is that the people who did something wrong here was Government. Government is responsible for this, not corporations. Government is the castle you should be storming. Government is the entity that brought you this mess.

Confused? Let’s go back in history and review how government is responsible:

A few years ago in 1977 government had an idea – lets bring the “American Dream” to everyone. Everyone wants to own a house, and its part of the “American Dream” – but the problem is, houses are expensive. Interest rates are high. The poor cannot afford them. And such was born the Community Reinvestment Act (which was later amended to enforce this policy even more in the 1990s).

The solution, government decided, was to interfere in the market through the CRA. Its not really shocking – we have not had a free market since the Great Depression. The interference was to change the risk and reward calculation in the marketplace. Until recently, lenders would not lend to those who could not afford a home because they would not make a profit. Government stepped in and did two things (1) demanded lenders do it anyway, and (2) made it profitable by buying these sub-prime mortgages off the hands of lenders or guaranteeing them for purchase by wall street banks. Everyone wins right? Government gives poor people homes they can’t afford, lenders make money, everyone is happy.

Until people stop paying on loans that they could not really afford in the first place. The result, as we’ve seen in the past weeks, has been utter hysteria, panic, doom, gloom, and general Wall Street mayhem. Most of it not rational, but really, who cares about rationality when hysteria is fueling stock sell offs.

Companies had their hand forced. Government told them they’d be charged with all variety of things and be investigated if they did not give more loans out to people who could not afford them. Concurrently, government artificially manipulated the market to make it profitable for companies to give out these loans. Companies couldn’t ignore it – they were regulated into submission, and failing to offer such a loan when all competitors were doing it would drive companies that resisted the urge into failure.

But here we sit, with the towns folk worked up into a populist mob, spun by media propaganda, with the media telling them to storm the corporate castle. Wrong target! You need to be storming the government castle, NOT over the decision to give a bail out – the bail out is correcting the government’s past stupidity – but over the original decision to force these type of loans!

“Let it fail!” the populist mob chants. They want these companies to fail, for there to be no bail out. We tried this before – it caused the Great Depression. You cannot let these things fail, especially when the fault lies with the government and the government caused the problem. We do not live in a free market people, it is an illusion. I wish it weren’t so. I am a free market libertarian, but I know we do not live in such a world. Had there been a truly free market, the original policy decision to give poor people homes they could not afford would never have been made. Then we would not have these problems.

You cannot argue for a bail out on the basis of a free market, because we do not have one and have not had one. You cannot argue that this is “privatizing gains and socializing loss,” because everyone gained – including you – from this stupid policy. The policy the government initiated rippled throughout the economy, raising homeowner equity and driving the stock market upward. Everyone gained. And now, there is a choice. If you fail to do a bail out, you lose too. It will cause catastrophic and irreversible market problems, and that will echo throughout our quasi-free market. Or, you can allow the bail out, and thus save the corporations – and yourself – from the pain caused by the government.

But please, my fair townspeople, do not waste your time by over-running the corporation’s castle. Redirect your righteous anger toward the real Frankenstein – Government.

EDIT: To correct typos.

[edit on 26-9-2008 by LowLevelMason]




posted on Sep, 26 2008 @ 07:44 PM
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Respectfully, I could not disagree more.

The Fed is the culprit. It is an Un-American coporation though the masses have been confused to believe it is an American agency. The government is the front for the shadow world bankers truly running the planet.

These coporations are tied to the Fed. They are all in on it together in order to consoldate wealth in order to centralize government.

You're right about the media lying. They are blaming everyone but the Fed.

Peace



posted on Sep, 26 2008 @ 07:47 PM
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Originally posted by Universal Light
Respectfully, I could not disagree more.

The Fed is the culprit. It is an Un-American coporation though the masses have been confused to believe it is an American agency. The government is the front for the shadow world bankers truly running the planet.

These coporations are tied to the Fed. They are all in on it together in order to consoldate wealth in order to centralize government.

You're right about the media lying. They are blaming everyone but the Fed.

Peace


Well you are of course free to disagree, but really its just the facts. The community reinvestment act is what caused this, not corporations. Government - not "the fed" - but the administrations who pushed the CRA (both republican and democrat) and the congress members (both republican and democrat) who did nothing to stop it - are responsible.



posted on Sep, 26 2008 @ 07:48 PM
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Who are you? Petrocelli, the star lawyer? Please don't try to defend the Zionist Fed. They'll fail and burn as they deserve. It's about time for their failure.

No more Fed, no more AIPAC rule, no more war for Israel.



posted on Sep, 26 2008 @ 07:56 PM
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I appreciate your tone for discussion. Many people cannot seem to discuss unemotionally.

I do not understand how you can say that the CRA is factual but you are free to that.

My opinion is that this event is indeed orchestrated and the Fed is the conductor. I do not infact have concrete proof though my ability to connect the dots is something I firmly believe in. Especially in the face of such corroborating evidence.

That's what's supposed to be great about the world is that you can have differing opinions. Too bad that has/is being robbed from us every moment.



posted on Sep, 26 2008 @ 08:25 PM
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reply to post by Universal Light
 


I understand what your saying, but really, the fed - if you mean the federal reserve and not fed as in federal government - was not involved in the decision to promote the CRA. This was a policy decision that both sides of the aisle made. It was the entire federal government in on the scheme.

The government engineered, promoted, and created our current problems. All of the anger is focused on corporations, when really, its the government that is responsible. Congress and every Presidential administration since 1977 should be ashamed of itself. Congress is lying to us, telling us that all this is the fault of the corporations when they know better, because they are TERRIFIED of what would happen if voters really learned the truth. I am urging ATS members to please look into the truth of this - the government must be held accountable for this, because it is them that caused everything! Both parties are responsible here!



posted on Sep, 26 2008 @ 09:21 PM
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I understand what the OP is saying, and the political shysters from both parties definately bear some blame in this. Democrats bear some responsibillity for forcing companies to make unsound loans to certain demographics, and Republicans bear the responsibillity for failing to regulate anything, and even step in with the justice department to override state laws meant to protect consumers from predatory lending (like in Georgia a few years ago). The OP sounds like something I heard Rush Limbaugh say not long ago.

However, it's not like all this happened overnight. It has been building for well over a year now. Some people were shouting about the systemic risk from all the bad stuff on the banks books almost 18 months ago. Only recently with the FNM/FRE fiasco followed shortly by lehman/mer, AIG, and now WaMu has the true magnitude of the problem really sunk in. For the past year we have been bombarded by statements like "the problems in housing has little chance of spreading into the overall economy" and "the bottom is in". Only within the past couple of months has the media really started to really report the issues.



posted on Sep, 26 2008 @ 11:12 PM
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Originally posted by jefwane
I understand what the OP is saying, and the political shysters from both parties definately bear some blame in this. Democrats bear some responsibillity for forcing companies to make unsound loans to certain demographics, and Republicans bear the responsibillity for failing to regulate anything, and even step in with the justice department to override state laws meant to protect consumers from predatory lending (like in Georgia a few years ago). The OP sounds like something I heard Rush Limbaugh say not long ago.


I highly doubt Rush Limbaugh would agree with my assertion that Democrats AND Republicans are responsible for whats going on here. In fact, given that hes completely partisan, I am 100% sure he would not agree with me.


Originally posted by jefwane
However, it's not like all this happened overnight. It has been building for well over a year now. Some people were shouting about the systemic risk from all the bad stuff on the banks books almost 18 months ago. Only recently with the FNM/FRE fiasco followed shortly by lehman/mer, AIG, and now WaMu has the true magnitude of the problem really sunk in. For the past year we have been bombarded by statements like "the problems in housing has little chance of spreading into the overall economy" and "the bottom is in". Only within the past couple of months has the media really started to really report the issues.


Your right that this goes back more than a year. It started in 1977, and was made worse my successive amendments by later administrations and complete willful ignorance by Congress who allowed the amendments and ignored any pleas for reform. The repercussions of the Act were obvious, but everyone had a "not my problem/it'll explode after I'm out of office approach."

However, I must stress that the problem here was regulation, not no regulation. As Ron Paul stated in his letter that appeared on CNN a few days ago, government caused this through enforcing regulation that forced companies to give out loans to those who could not afford them - or suffer from adverse regulation that could take away their right to do anymore banking business.

The answer is not more regulation, but government getting OUT of the market place and making it free for the first time since the 1930s. But that is never going to happen. Government has too much interest in manipulating the markets for short-term gain and long-term disaster.

[edit on 26-9-2008 by LowLevelMason]



posted on Sep, 26 2008 @ 11:20 PM
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Originally posted by LowLevelMason
If you fail to do a bail out, you lose too. It will cause catastrophic and irreversible market problems, and that will echo throughout our quasi-free market. Or, you can allow the bail out, and thus save the corporations – and yourself – from the pain caused by the government.

But please, my fair townspeople, do not waste your time by over-running the corporation’s castle. Redirect your righteous anger toward the real Frankenstein – Government.

EDIT: To correct typos.

[edit on 26-9-2008 by LowLevelMason]


Everything you said was well thought-out arguments made perfect sense, until you got to YOUR solution. You correctly pointed to how we got into this mess, then you propose more government intervention to solve our problem. You seriously contradict yourself here. You say you want free markets, and correctly point to the fact that corporatism along with intervention in capital markets led us to this mess, yet you propose MORE GOVERNMENT TO SAVE US. You need to re-think your analysis.

P.S.: I've never heard of a libertarian solution to government caused problems as crying-out for MORE government, unless you are a Cato/Beltway libertarian.




[edit on 26-9-2008 by Gateway]



posted on Sep, 26 2008 @ 11:44 PM
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reply to post by LowLevelMason
 


I gave you a star because i agree with 90% of what you said. If you go back and read my post pertaining to this mess you'll see i have been saying this in all of them. The Government shares just as much responsibility for this mess as the bankers and ceo's.

Yes the government wanted to give everyone the American dream But it was the bankers and ceo's that lobbied congress to change the rules to make it happen.

However we all know that if their is a bailout nothing will change these same bankers and ceo's will continue on repeating the same mistakes over and over because they have not learned the lessons of the past and they are far behind the curve on the lesson their being taught right now.

We all also know that the only way to change Washington is to force a change. These people might be elected by us but they seem to think they don't work for us.

I said in another thread just a few minutes ago i just got back from a family reunion. My extended family comes from every corner of the U.S. and just about every occupation in the U.S. this bailout bill was the talk of the night. I personally talked to at least 100 family members that i haven't seen in a year and i have to say at least 90 of them were completely against Bailing out these crooks (that's wall street bankers and the government all together) 5 were for the bailout and the other 5 wanted more info before they decided one way or the other.

Looking at some of the polls that have popped online about this issue i'd say my family was in line with those polls.

Now getting Back to forcing that change in Washington, the only way things are going to change is if the bottom falls out and people are forced to wake up and see what's really been going on. then remove the current corrupt government and replacing it with one that will get back to using the constitution. and running this country the way the founding fathers envisioned.



posted on Sep, 27 2008 @ 12:29 AM
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LowLevelMason:

So in other words, you think that government got us into this mess and now government can get us out of this mess???


I think you tell a compelling story on how we got here...but leave the tracks when it comes to what to do about it.



posted on Sep, 27 2008 @ 12:34 AM
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Honestly, all of this crap comes down to the same thing as with the housing bubble. People try to live above and beyond their means. How in the hell is someone making, let's say, $40,000 a year going to make a mortgage loan on a 300-400 thousand dollar home?

Honestly, in my opinion, people should "bail" themself out of their own mistakes. Don't place it on the taxpayers shoulders, who had absolutely nothing to do with your problem, to "bail" you out. Socialism at its worst at worlk.



posted on Sep, 27 2008 @ 12:38 AM
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reply to post by LowLevelMason
 


You have it right sir! You have said what I have been trying to explain to friends and family all week long! I thank you very much for the well written post!

reply to post by SpeakerofTruth
 


I also agree with you. The taxer payers should not be paying for this! But then again, are we not the slaves of this country? I know the word slave is a little harsh, but we are all bound by the federal reserve, so in essence we are in a bondage of sorts.

BTW-nice to see you on the field of battle once agin Speaker


[edit on 27-9-2008 by zysin5]



posted on Sep, 27 2008 @ 12:55 AM
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... It started in 1977, and was made worse my successive amendments by later administrations and complete willful ignorance by Congress who allowed the amendments and ignored any pleas for reform. The repercussions of the Act were obvious, but everyone had a "not my problem/it'll explode after I'm out of office approach."


As was stated before, the Banking industry was more than happy to place wads of Cash into the political system to grease the wheels, kind of a 'scratch my back while I scratch yours' in order to not only satisfy the demands of politicians, but to increase the latitude of the Banking and Loan and Investment industries options.


Originally posted by LowLevelMasonThe answer is not more regulation, but government getting OUT of the market place and making it free for the first time since the 1930s. But that is never going to happen. Government has too much interest in manipulating the markets for short-term gain and long-term disaster.


Yes! Let us pull the Government away from the situation completely, so the Markets can take their course and the giants can fall into the morass they made. Then we'll eliminate the FED, place new restrictions on what the Bankers and Market people can do, and increase the penalties on them to say ... oh ... 50% of all holdings and salaries plus bonuses for the following five years?

[edit on 27-9-2008 by 2stepsfromtop]



posted on Sep, 27 2008 @ 12:59 AM
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Thank you Zysin... I don't post as much as I would like anymore because I'm busy. However, I try to post as often as possible.



posted on Sep, 27 2008 @ 01:07 AM
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While I agree that CRA and the government had a small role in what has happened with this whole financial meltodown, the gigantic and overwhelming majority of blame should be placed directly on the shoulders of the greedy bankers and mortgage lenders who created and devised a vast variety of ways to screw themselves into the hole in which they currently find themselves.


Sub prime lending was a big risk to begin with, lending money for homes to people with less than great credit. But plain vanilla sub prime lending is only a small part in itself. For instance, how about stated income loans for example? Stated income on a home loan means that the borrower will take a much higher interest rate in exchange for not having to verify their income. At all. It is known in the industry as a "liar loan".

Why would such an obviously dangerous product be sold by banks and major lenders? Huge profit returns. The people who were doing stated income loans were mostly self employed business owners and land investors who purchased multiple properties for income purposes. NOT poor people or sub prime applicants. These are the loans that are in highest default. Many were done at 90-100% LTV, meaning that the purchaser put very little to none of their own money down at closing.

Suddenly property values begin to fall, and speculators who owned all of these investment properties who were becoming upside down on their investments simply walked away and let the homes go into foreclosure. And why wouldnt they? They had little to no money invested and instead of paying on a losing horse they simply let it go. Why would they care? They didnt live in the houses, they get to keep their real home.

Another product that had a great deal to do with the super high foreclosure rates - Interest Only loans. IO's have the borrower paying only toward interest for the first x amount of years, giving them a lower required payment and allowing them to purchase much more home than their income would normally allow. Many of these laons were also closed with little or no money down, mostly by young (and not so young) professional types who wanted to appear to be more well off than they actually were.

Then here we go, property values decline, after two or three years the IO payment amortizes to a full required payment which is much higher. Because the value of the home has dropped these people couldnt refi as they had intended to do once the payment changed, and again they simply let the house go into foreclosure. Who wants to make a higher payment on a house that is worth less than they owe?

And lets address sub prime loans for a second. The reason there were so many ARM's being sold to sub prime borrowers over the last few years was the fact that until 2007 an adjustable rate mortgage had a much lower rate of interest, hence a much lower payment than a standard 30 yr fixed loan. Lower income borrowers often couldnt qualify due to a higher payment on a fixed loan so in turn they took the ARM with the intention of refinancing before the 2nd or 3rd year was up and the rate and payment jumped. Here again, the home becomes worth less, they cannot refi into a new loan, and before you know it they cant afford to keep up with the new higher payment and default occurs.


What is the point of me writing all of this? My point is that the housing crash is a result of a lot of bad business decisions and poor lending standards. But the fact is the vast majority of this mess was caused by greedy, careless, over zealous lenders who jumped at the chance to charge that sub prime borrower 10% on a 30 year loan. It was caused by the insanity of a greedy group of bankers and wholesalers who pushed these volatile products so that they could reap the huge financial rewards from Wall st when these products were packaged and sold in the secondary market.

These same bankers who are here begging for our tax dollars are the same ones who made billions of dollars selling high risk products to people who only wanted to own their own homes. The responsibility lies with the lender for this mess. If these greed driven products werent pushed on the public this mess would never have happened. If we had never strayed from tried and true lending practices which state that 35% DTI is the max allowed, that time on the job and credit worthiness were important, the methods which prove that you never lend anyone a loan on a home which they are less than likely to be able to pay back.

GREED GREED GREED GREED ....this is why these products were offered. This is what led us to this mess. Why give a high risk borrower with a 520 FICO score a $300,000 home loan at 11%? Huge rewards $$$. There was so much more money to be made off of these poor saps than there ever was doing a mainstream home loan for the guy with a 750 FICO at 5% fixed. It was greed pure and simple. Blame the home owner if you want but they were only guilty of wanting to live the American dream of owning a home. Give anyone enough rope and they will hang themselves and that is what has happened.

In case you are wondering, I have seen this s***storm unfolding since 2005 being that I am a mortgage broker. I have seen the changes, the high times, the panics. I was there in March 07 when the first major lenders started to close down and the program standards began changing. It has been a down hill roller coaster ride since, with over 300 major banks and mortgage lenders (some giants) having gone under for good.

And I hate to say it again and again....but the worst of this is yet to come. Next comes the auto finance meltdown, soon followed by the mother of all financial disasters...the credit card companies. We are all in for a serious punch in the face.

But to say that blaming the government for this crisis because they required lenders to make loans to X amount of low income or minority applicants is just stupid. The lenders were more than happy to do so because they made big bucks off of them. Now the tit has run dry, the consumer has struck back and retaliated in the worst way possible...they stopped paying on their mortgage notes. Now the fat cats are panicking and the empire is crumbling around them.

With all due respect...I say EFF 'em. Let them pay for their piggish behavior. The government may be guilty of letting them get away with it, but the lenders and the Wall st investors were the ones planting the poisonous seeds. They deserve no pitty.


$0.02



posted on Sep, 27 2008 @ 01:53 AM
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reply to post by BlackOps719
 


Star for you BlackOps, excellent job explaining the situation. Though I would disagree with your statement that it is stupid to put any blame on the government for their role. I would argue that their regulations were the catalyst that triggered these shady lending practices... and from there, the lenders were happy to run with it.

To LowLevelMason, I agree with your main point, that the government is somewhat responsible by forcing banks to lend to unqualified buyers.

However, that doesn't mean bank CEOs, such as Alan Fishman of WaMu, should be walking away with $13 million, leaving shareholders with nothing but the bad debts. Especially since he signed on as CEO on Sept 8. He was president for 3 weeks and is now leaving with $13M. So much for the captain going down with the ship. People have a reason to be mad over this.

Another point though... there are two different issues I am seeing here:

One, of course, is whether or not there should even be a bailout, which I don't think there should be. This being what most seem to be upset over, the thought that taxpayers would be padding the pockets of Wall Street fatcats.

But the second issue, and perhaps what I consider to be a bigger issue, is what Bernanke and Paulson are trying to do by attempting to ramrod a "rescue plan/bill" through Congress that would put the Treasury Secretary above the law, with no oversight, making its actions non-reviewable by any court or agency. If the "Paulson Plan" were to be signed in as proposed... the Secretary would effectively be the most powerful position in America, with powers unprecedented in this country.

Make no mistake, this is an attempted coup.

[edit on 2008/9/27 by evilod]



posted on Sep, 27 2008 @ 02:03 AM
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reply to post by LowLevelMason
 

I think that the prime media holds remarkably well. The sign [Frankenstein Castle ----->] was mounted in the media called "bloggers."

Finger pointing in any direction will not solve the immediate problem; lots of brainpower might.

It's hard to believe that there was a single cause to the nearly $1 trillion oversight -- there is no executive entity with such a power to create this monster screw up by itself. It was a snowballing effect and the path leads back to Federal Reserve and its chairman Alan Greenspan who pleaded guilty on several occasions as early as 2006. It's up to the Federal Reserve to grab the biggest shovel and clean the mess.



posted on Sep, 27 2008 @ 02:17 AM
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Quite frankly i am astounded that you can separate the Govt. from Corporations, and in particular the Banking Corporations.
Special Interests. Lobbyists. How much did the US govt just hand over to the auto industry a few days ago?
The Corporations ARE the Govt. Who pays for all the campaigns. Who pays for all those lobbyists. Who get the Tax breaks, the funding, the contracts, and the get out of jail free bail out pass......Corporations. Where do Politicians go to retire...Corporations.
You mentioned Frankenstein in your OP. Frankenstein is the monster called GOVT. And he is pieced together in Corporate Castles. Let 'em burn.
I'm rooting for the towns folk. Quite frankly I do not see the difference between Big Banks and Corporations and the US Government.



[edit on 27-9-2008 by atlasastro]



posted on Sep, 27 2008 @ 02:23 AM
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While I agree the government helped to get us into this mess, I do not agree with the "corporations as poor innocent victims" tone.

I do not believe for one second that corporations have had their arm twisted "forcing" them to make bad loans.

You are right in that we need to take our pitchforks and torches to Washington as well, but I wholly disagree that that means we should coddle Wall Street.

Who do you think has been buying our politicians for the same amount of time you notice this trend in home loans or longer? (and I would argue LOTS of other programs that benefit the corporations at the expense of the taxpayer) We need to clean the political house, AFTER we let Wall Street fall, and then we need to enact real campaign finance reform to try to help keep the politicians out of bed with the corporations.




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