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

If you think the sub prime mortgages are the primary cause for our current economic situation you are badly missing the big picture. It's the 30 to 1 leveraging, the packaging of these home loans the bankers knew were risky into guaranteed security instruments and a government who spends beyond the total assets of the country who made this mess.

If nothing is done the country will go into a depression because we have more debt than we have assets - to a factor of around 1000 to 1. The grand total of bad home loans isn't even a drop in the bucket. It's the hedge funds and derivatives built on top of those loans which add up to trillions in empty, junk investments.

The bail out as structured will not solve anything other than give some people the time needed to shift their money out of the markets, out of the country and for the Fed and it's owner members to buy up assets for particles on the dollar. The taxpayers will be left holding the bad debt with hyper inflation and a dead economy. The middle class will be gone as the people who still have jobs find themselves paying huge tax percentages and facing skyrocketing prices for housing, food, transportation, etc.

You're partially right, the peasants should be storming Washington but a visit to Wall Street is also required. Of course, my fellow sleepers will do nothing, they won't take action until each and every one of them faces a personal threat and by then they won't act without a mob to back them.

It's over. Time to start working on plan B.

This bailout will fail to save the country and within a month or two we'll be in an even bigger situation only now the newly created 4th branch will have the power to steal every retirement and savings account, every property deed, everything.

The N American Union and a new currency will be the "solution".

reply to post by LowLevelMason

Thanks for a very reasonable explanation to our current crisis. I too have a libertarian
approach to government, but the mob, like sharks, smell blood and want to devour their perceived enemies even if it means killing themselves in the process. Some on this site are calling for a great Depression. What do they think a Depression is? Do they think that if they get their wish they can just go to sleep and wake up in a brand new world where everything is fine? They see everything through a conspiracy lens so that their perceptions become their reality. I pity the fools. Too bad I'll have to suffer with the rest of them.

Interesting that the "corporations" aren't to blame, yet the act has been in place since 1977, or even 1990. So, for 17 years, things went fine, they're just NOW showing up? I don't buy it.

Off topic, but hilarious. When my son was about 6 years old, we were walking and he said "Dad, what's an 'angry mob'?" I proceeded to explain (I believe I even used the "Frankenstein's castle mob" as an example. I then asked him why he was asking. He said "I was just wondering."

He paused for a second and then said "Dad.... I think when I grow up, I'm going to join an angry mob!"

Little did I know how prophetic that statement seems to be now.

I have my pitch fork and torch ready and I am
storming both the banks and the government.

Why because the government deregulated the banks and then provide
little or no oversight, in other words they turned a blind eye on what the banks
were doing.

The banks because they created the high risk loans and then pakaged them
as a security which other banks proceeded to buy up in droves. then as
soon as the loan was signed the bank then posted a profit for the loan even
though they did not have the money in hand for the profit.

I have gone trough this before when the savings and loans fell in the 1980's
they wiped me out financially, I survived then and I'll survive this one.

LET THEM FALL it will be better for us all in the long run.

Wing-Nut

[edit on 9/27/2008 by Wing-nut]

The OP's argument is overly broad and siplistic, IMO. There is NO question that banks went well outside the spirit and letter of the CRA making loans. Many falsified appraisals, made-up borrowers' financial information and ignored or changed credit history data in order to make loans. To blame the CRA for what banks --- many of which were not even covered by the CRA --- did outside proper lending practices is absurd. This is a classic case of baby v. bathwater.

Some economists have claimed that the CRA encouraged risky lending[12][13] and contributed to the development of the subprime debacle.[citation needed] However, this is disputed; for instance, Robert Gordon has pointed out that approximately half of the loans were made by independent mortgage companies that were not regulated by the CRA, and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated, but had very little CRA involvement.[14][15] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.[14]

Congressman and 2008 Republican presidential candidate Ron Paul has partially attributed the ongoing subprime mortgage crisis to legislation such as the CRA.[16] Economist Stan Liebowitz has also expressed his opinion that banks were forced to loan to un-credit worthy consumers with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." However, the chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that to approve minority applications "lenders have had to stretch the rules a bit", suggesting that Countrywide was responsible for relaxing its standards rather than the other way around.[17]

Ellen Seidman, the former director of the US Office of Thrift Supervision,[1] has stated her belief that the CRA did not have an effect on the United States housing bubble. She observes that CRA banks were particularly warned to make responsible investments, citing a speech by herself as an example.[2] She notes that if unregulated independent mortgage companies do make subprime loans, affiliated CRA banks should not be able to count them for CRA purposes, although she does not indicate whether this practice currently occurs. An analysis by attorneys Traiger and Hinckley concluded that CRA banks were less likely to sell risky mortgages onto the secondary market, and likely mitigated the effect of the subprime crisis.[18]

Source

The government has its share of the blame. Oversight was non-existent while these banks fleeced the country under the guise of 'affordable mortgages'.

Look where the majority of the early precipitating foreclosures took place. Try and reconcile that with the intent of the CRA (which, BTW, involved more than just 'easy' lending).

I'd say anyone who can afford a castle be they government or private is a legitimate target for the angry mob.

Originally posted by nfotech
the packaging of these home loans the bankers knew were risky into guaranteed security instruments

Precisely....I believe the financial instrument that is causing the greatest grief is the Credit Default Swap...

A specific kind of counterparty agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments (essentially an insurance premium). If the third party defaults, the party providing insurance will have to purchase from the insured party the defaulted asset. In turn, the insurer pays the insured the remaining interest on the debt, as well as the principal.

This content can be found on the following page:
www.investorwords.com...

It's the billions tied up in these instruments that can't be paid. Rendering them worthless.

Check into these actions.....there lies the root of the problem.

[edit on 27-9-2008 by MrPenny]

reply to post by LowLevelMason



i'm totally in agreement, the Gov't.......

The mess we are in now can be viewed as a continuation of the LBJ Great Society program
the housing scheme was devised for placating the poor but 'American' citizens

partly stemming from the 'being PC' mindtrap
and hyped further because the illegal alien issues were about to cause physical dissent & crisis with the masses....

ergo, getting the poor & disadvantaged at least a temporary piece of the american-dream was begun with the many house buying programs.
house buying with mandated lower expectations on the buyer was forced on the lenders or financial leverage would be applied to the non-conforming banks & mortgage lenders like Countrywide (using the Bear Stearns disposition of what non-compliant banks & lenders could expect in the 1990s-2006)



Great-Society indeed

I feel that the central point of the OP is right... we blame the wrong people.
But, that's because we don't know that we're to blame- or even WHAT WE ARE !

Let me put it this way. When you are a junkie- completely hooked on drugs, and your dealer says there is a problem with the system... you do whatever the dealer says to get the system working again. Even though the dealer caused the problem, and even though you know the dealer is your enemy. Even if you know that the whole system is evil.

Yes, we blame the wrong people.

How come no one blames every greedy person that signed the loan docs? If you make 30.00 an hour why would you ever think you could afford 700k home. Well the guy told me it was a good deal and home prices will never come down. If you walk past a guy dealing drugs on the corner and he offers them to you, it is your decision to buy what he is offering or not. If you keep walking it is because you are informed and understand what you are getting into, if you take the drugs and wreck your life, is it the drug dealer fault because you bought them? NO. President Bush did not make anyone take a loan. The federal reserve did not make anyone take a loan, Country wide did not make you take a loan, Ameriquest did not make you take a loan. These companies simply knew that the greedy little people running around feeling like they deserve everything "The American Dream" would do this with very little encouragement from the TV. The fault lies with every person that took the loans. We are not very complicated animals and I think that the powers that run this place know exactly what the herd will do, given a situation.

The Banking system, the FED Runs owns our Government !

This is final scam of the Bush Crime Family, essentially another 9/11, but a martial law takeover of the remaining powers of Government, our financial system and economy.

Weren't we a little suspect when Phil Gramm introduced legislation to vote out the Glass Stegall act which had been introduced in 1933 to prevent this from all occurring again ?

Weren't we even a little bit suspect when the "Decider" signed stricter bankruptcy legislation into law several years ago protecting the Banks ?

I know I was, it was pretty Hoover Dam clear as to what was brewing.

And Here we Are !

The Banks were certainly aware of CRA and the associated inherent risks but this is why higher risk mortgagees paid additional FHA mortgage insurance as well as higher interest rates for decades has worked.

The real problem is that recently, the consumers were swooned into buying homes with as little as 0% down to perpetuate the Real Estate bubble and Banks were turning around and lending $30. on every $1 they had, not in deposits but in mortgage secured debt agreements.

Since many of the sub prime consumers only had 0% invested, when the mortgage payment ballooned they walked.

All mortgages are secured by a now devalued asset and that unfortunately is a business risk that we shouldn't be burdened with especially when the majority of us are still paying our mortgages.

I'm sorry but thats for the Bankers and their overpaid MBA's to work out now.

reply to post by LowLevelMason

Brilliant OP, I loved the wording, very artistic.

I know people are saying, "you didn't have to take the loans..." but most people were pushed along in this "American Dream" like fish swimming in a school. It IS largely the fault of the government, the feds, the large corporations, the mainstream media...anyone with a big enough megaphone to make an impact on the direction the fish were swimming, they are to blame for the net we all ended up in.

reply to post by LowLevelMason


In a fascist dictatorship government and corporations lead back to the same people. If anything people are storming the wrong castle for not knocking on the doors of the people who own the corporations.

Distinguishing between them and government is pointless. Besides, there might still be a few good souls in government that might stop this heist yet.

One of my hopes for democracy is that it makes it into the corporate sphere. CEO's would be less inclined to be bastards if they could be voted out by their employees and indeed even by their clients...

reply to post by Mercenary2007


I agree. Let the bottom fall so something REAL gets done, not a another band-aid. Maybe if the bottom falls we will actually get to look at going back on the gold standard or something else not inflation based.

BTW, I like your avatar and motto.

reply to post by LowLevelMason



First we'll start with Wall Street, then to the government.

One rotten apple at a time until only the good ones are left.

Can you imagine the amount of savings on government workers alone, that would be more than 50% most likely.

I distictly remember reading that banks where double loaning to allow people to buy houses out of they're financial ability. They used the carrot and stick principle. You walked into your bank/mortgage company to buy the house you found and liked. You have 10% to put down but they require 25%. They tell you, 'No Problem, we'll just loan you X amount of dollars to makeup the downpayment discrepancy and then we will be able to mortgage your house!" You now have two loans to pay off and your in deep do-do!. Mostly this was done to the lower payed of our populace and the unknowing in financial knowledge. The banks got double interest and if they percieved any trouble with the loans they then turned around and sold those loans for a profit to differant parties. Nice scam! Who do we blame for this and who was responsible to oversee banks and lending institutions that carried out this scam?

Zindo

reply to post by LowLevelMason


I only disagree with the premise that "poor" people could not buy houses in the 60's & 70's. that is not true-working families have suffered a major blow due to inflation in the past 30 years, today the "poor" are the same people who did purchase houses for what they were worth back then. If you seek the reasons behind inflation, the same path leads to market manipulation that the fed is responsible for, the system is broken and needs to be rebuilt from the bottom up. I don't believe any short term bailout is going set anything right.

People are giving Congress hell-they feel the heat. The right castle is being stormed.

reply to post by LowLevelMason


So Enron and Halliburton are NOT evil
And I don't need to worry about my deposits and mortgage held by WAMU?

Whew... what a relief...

Wow, thanks for all the discussion on this. It would take me all day to respond to everyone individually, so I'll just address everything generally:

Why am I saying we need government interference, and why is that consistent as a libertarian?

We do not live in a free market, and we have not lived in one since the Great Depression. Government engineered all of our current problems, and it forced banks into the situation we have today. Corporations did not agree with the Community Reinvestment Act - if they did, the government would not have to force them to comply through accusations of redlining and adverse regulation.

So what we have is a problem that government created, in a market that is no longer free. There are two options. I only talked about what I thought was most likely instead of what I would most likely prefer:

(1) Get out of the market interference entirely. This is my preference, and I think would be the preference of most on ATS. It is not the role of government to cause companies to fail by crafting stupid policy and then forcing business to follow that policy - even when it doing so causes business to fail. Government can and should return us to a free market devoid of government intervention. In such a case, I would find it acceptable to let these companies fail as a sacrifice and a reminder to the total stupidity that occurs when government attempts to intervene in the markets. This would mean ALL GOVERNMENT INTERFERENCE WOULD CEASE. No more government sponsored entities ready to guarantee bad loans, but ALSO no more FDIC insurance, student subsidized loans/PELL grants, or any other interference in the market.

The problem is that why people are screaming about this "bailout" (which is not really a bailout but is founded in populism, as the OP described), they absolutely love their FDIC insurance, interest free student loans, and "free "government money like PELL grants. We cannot selectively decide to remove government interference. Its all or nothing. The problem is, practically speaking, the population will not go for a total withdraw of government intervention because they enjoy the benefits of such intervention.

2) Since, practically speaking, (1) is not going to happen - the choice is to do this plan or not. I don't really support the plan, but at the same time, if government refuses to stop interfering and causing chaos in the markets than what exactly can we do? Government must be held accountable for its actions, and it must try fix the problems it created. Doing nothing is the moral equivalent of giving government the license to create disasters and then turn its back on the disasters it creates and not even having to consider trying to fix it.

Yes, government intervention will create problems. The question is this: what is the total cost of allowing government intervention, versus no government intervention. That total cost includes everything, like for example the ripple effect from banking failures on the entire economy that harm every citizen. It also includes the costs of the bail out were it to take place, the probability of its success and actual total cost in taxpayer money.

When economists have crunched the total economic impact of either option, doing nothing costs far more than doing something. That does not mean doing something is right, it is simply the lesser evil because government refuses to do what IS right, which is getting out of the market. Its not going to be problem free - everything the government touches causes problems - but the problems created by fixing the government's stupidity in this case outweighs the only other alternative being considered, which is doing nothing.

We live in a globalized economy where all the sectors are interconnected. One firm, if its large enough, causes pain to every other firm - which they all pass on to the consumer. Letting corporations fail when government caused the failure does not somehow contain the problems to the failed institutions. The magnitude of those problems will spread to everyone. Were the government committed to never interfering in the market again - as it should not - you could consider those problems a final sacrifice to government stupidity. But thats not going to happen. In our economy the success or failures of large businesses are enjoyed by all through secondary and tertiary market impacts. Part of this is the interconnectedness provided by government regulation. Until we remove that regulation, it will continue.

Evidence of the populism pushed by the media can be seen in this thread

As stated in the OP, the hatred for corporations has been pushed by the media as part of their populism narrative, and you can see it even in this thread. Quite a few posters completely ignored the role of government and instead decided to post paragraph after paragraph about how evil corporations were responsible for all this.

That is part of the lie government is telling you. Government wants you to hate the corporations, because it shifts focus off them. They want you to get mad at them, and place the blame on them. But its not what happened. Government is responsible for this. Government regulation is what placed these corporations where they are at, and your hating the wrong entity.

Businesses exist for two purposes: profit AND self-preservation. The two concepts go hand and hand - a business that goes out of business is no longer a good business, regardless of the profits it made previously. In a free market, without government interference, businesses would have no incentive to offer subprime mortgages in the large quantities they did, because the big profit was offset by large risk of losing all of their investment. It is only because government changed how risk/reward was calculated by their policy decision to offer loans to people who could not afford them, that banks began offering mortgages like this en masse. Government set up a system that artificially decreased risk while not decreasing profit, while concurrently threatening everyone to offer subprime loans or face the consequences of adverse regulation.

Had the government not intervened, businesses would not have offered subprime mortgages in the large numbers that they did because it would not make sense either in terms of profit or self-preservation. Then, the resulting problems of such loans would not have causes the domino effect that leads to the problems we have today.

[edit on 27-9-2008 by LowLevelMason]

And just to clarify: Government is responsible, but that doesn't mean everyone else wasn't complacent in the events that followed.

I am not claiming anyone is innocent in this mess. To get to today's point, EVERYONE had to make a incredibly stupid decision along the way: from government, to corporations, to subprime home owners who cannot afford their loans. I am simply pointing out that the source of the problem, the primary fount for everything we see today, was engineered by government.

But if government had not moved to intervene in the first place, the following inevitable string of events that brought us today's disasters would not have occurred. I am deeply concerned that everyone is spending too much time getting angry at the complacent players like the corporations (because of media populism) instead of focusing attention toward the government, who is chiefly to blame here and who is doing everything possible to point the finger elsewhere.

The government doesn't want you to know what they've done. They want you believe that everyone is responsible except for them.

[edit on 27-9-2008 by LowLevelMason]