Taking Profits - Thanks, Obama 24 comments
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Ironically there is a great role reversal as commodities/global growth have taken over what financials/housing/retail was in spring and summer 2008. That is, a very hated group that after being sold relentlessly enjoyed enormous short term bounces.
We are now in day 3 of the "Obama will save us with infrastructure" specific bounce - so I am going to be start taking some commodity exposure off the table here. The "monolithic" trading (student body left and right) within sectors continues. Every stock in said sector is the same - the stock name is meaningless - either the sector is good or bad.
- Cutting A-Power Energy (APWR) from a 3.4% stake to 2.4% stake (taking 30% of position off the table) as the stock rallies to $5.20s. Note, I believe fair value for this stock is far (FAR!) higher but this is just a trading call. When the stock gets back over its 50 day moving average, this will be a far larger stake in the fund, as I think fair value lies in the $20s+. The market disagrees with me. Much of this was bought in the upper $3s to lower $4s, so we have about a 30% gain on that batch (still at a large loss on the overall position). Obama is so powerful he even impacts Chinese infrastructure stocks.
- Cutting James River Coal (JRCC) from a 0.8% stake to 0.2% stake with sales just over $13. Resistance lies just over $14. Pundits told me Obama is an enemy of coal, but since Obama causes all our ills to go away with a snap of a finger, his midas touch can even cause sectors he is out to destroy to go up. He is just that good.
- Cutting Mosaic (MOS) from a 1.8% stake to 0.9% with sales in the $34s; resistance lies near $40 where we'll cut the rest.
- Cutting Potash (POT) from a 2.2% stake to 1.1% with sales just under $67; resistance lies in the lower $80s where we'll cut the rest.
If none of these continue upward to their next resistance, that is fine too, as we've taken some of our profits and we will be ok either way.
That's all we really have left in the global growth area - I probably should own Ultra Basic Material (UYM) as the upside hedge to the Ultrashort we own (in very small percentage currently) since it's all about ETF trading nowadays. Frankly we got caught flat footed on this Obama trade, since I thought everyone was aware he was all about infrastructure. We even highlighted this group last week [Back of Envelope Look at Infrastructure], and yet did not catch the move - which is why it's a lot easier being a strategist than an investor.
We'll be buyers on pullbacks and begin to add infrastructure exposure again on the next leg down because thesis is more important than reality. Once more our favorites would probably be Fluor (FLR), Jacobs Engineering (JEC), Foster Wheeler (FWLT) and for valuation KBR (KBR). One also has multiple basic material names to own in this space, cement and the like - ironically all the things that were running on either the US housing boom or BRIC country growth. With that said, the "rule" is new bull markets are not led by old leaders,and this was the leadership group for 2007 and 1st half 2008, so I would find it hard to believe they become the new leadership group. 
I am scratching my head why solar stocks have not had a huge run here since Obama "hearts" solar. Maybe if a television interview catches him saying it explicitly (which is the only time the market seems to reacts) "solar is very cool" we can get 200-500% moves in those names in 3 sessions.
Outside of those names, I continue to cut back Ultra Financial (UYG) and Ultra Real Estate (URE) - I don't normally discuss each ETF trade because they are more hedges than positions, but since ETFs have become more important than individual stocks, I guess I should spend more time talking about what I'm doing with them.
After the "good" reaction to the jobs report, I got these two up to 4.75-5.25% stakes and they spiked together up to about a 12% stake Monday. I've been liquidating them through the week, and now the former is down to a 2.4% stake and the latter is a 1.2% stake. So in a snap of a finger (48 hours) we've gone from 12% exposure to about 3.5%. I don't see any fundamental reason (outside of government intervention for the financials and "hope" for the real estate) for a rally, but I am not going to turn down a profit-making opportunity when Kool Aid brings it.
Both have stalled at key resistance, and I am itching to get some more of the Ultrashort that bets against both these sectors, but not until the market weakens. Or, being flexible, if we rally straight to inauguration day - once these break above current resistance (blue line) above we'll jump back in and cheer until the red line (50 day moving average. Then short. It's all about sentiment baby - certainly nothing to do with fundamentals which in fact appear to be degrading fast.
I'm monitoring other positions to sell; remember the higher we go, the game plan is to get more in cash (but not begin to short) until the market turns back from hope to reality. The "easy" money of this move has now been made, and I'll forgo the next part of the move up, if there is one, for safety. We had about 11-12 earning warnings the past 48 hours and the market shrugs it all off. That is good from a "stock market" perspective, but as I said repeatedly, we will swing from hope to reality throughout 2009, and we are not going to get caught in the hoopla of hope.
There are real people with real problems being caused by all these job losses in an economy driven 70% by consumption. The idea that road projects and broadband upgrades (that are long overdue) is going to save us in 2009 is silly. But it's thesis, and thesis is all that matters. What we wanted to see is a change in character - when the dip comes will the buyers surface or run away? So far they have surfaced, so we have to remain constructive to the upside while intellectually shaking our head. Just as we don't want to stand in front of a stampede of razor clawed bears, neither do we want to stand in front of drunken (on Kool Aid) bulls.
Those of you who caught the DryShips (DRYS) move, I salute you. This apparently is now the daytraders choice of plaything. Just don't be greedy - you caught 3 years of gains in 3 days.
I will be looking at some other names to sell off as we build up cash if the market continues its Obama Love Fest....
Disclosure:Long Mosaic, Potash, James River Coal, A-Power Energy, Ultra Financial, Ultra Real Estate in fund; long A-Power Energy in personal account
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This article has 24 comments:
PORK BARREL SPENDING IS ONLY PORK BARREL SPENDING.
Obama's simply retarded plan to waste taxpayer money 'building whatever' is the worst idea possible for the taxpayer at a time like this.
Obama actually said that changing light bulbs and heater systems in Federal buildings would save the economy.
Ummmm....don't we already have janitors?
Pork Barrel spending of DEBT DOLLARS ?
Who cares the Debt Dollars have no value in reality.
With a $11 Trilliion Dollar National Debt + $600 Bilion Dollar + Interest payment due each year on the National Debt + Trade Defict + Budget Defict + all the Fraud of Military Contractors in the Billion = THE USA IS SCREWED BUT GOOD .
We face at least 900 % HYPER INFLATION WITHIN 4 YEARS !
On Dec 10 03:39 PM update wrote:
> PORK BARREL SPENDING IS NOT AN "ECONOMIC STIMULUS PLAN".
>
> PORK BARREL SPENDING IS ONLY PORK BARREL SPENDING.
>
> Obama's simply retarded plan to waste taxpayer money 'building whatever'
> is the worst idea possible for the taxpayer at a time like this.
>
>
> Obama actually said that changing light bulbs and heater systems
> in Federal buildings would save the economy.
>
> Ummmm....don't we already have janitors?
>
Really? Can you cite a legitimate source for this "quote"? Didn't think so.
"Obama's simply retarded plan to waste taxpayer money 'building whatever' is the worst idea possible for the taxpayer at a time like this."
Who said "building whatever"? Can you tell us specifically what is in Obama's plan that you don't like?
thanx. good helpful article. what do you ink about sgr? also is it time to take the money and run on the dry shippers? drys looks like it could go a bit further doesn't it?
BS
are you one of those BO protection bloggers?
update
i missed that one. guess i was busy checking my tire pressure.
Closer, but not quite. Here's the quote:
"Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That wont just save you, the American taxpayer, billions of dollars each year. It will put people back to work." [www.foxnews.com/politi.../]
Now, when I read that I make my own determination of where it would "put people back to work." I take it to be far more in the installation of new systems as opposed to people going around replacing light bulbs.
In any case, It's not anything close to "Obama actually said that changing light bulbs and heater systems in Federal buildings would save the economy."
Fireball wrote: "are you one of those BO protection bloggers?" All you have to do is follow the link to my other comments to make up your own mind. Too much work? Or is your mind already made up?
On Dec 11 01:14 PM BS Detector wrote:
> "Obama talked about changing light bulbs in his speach last week
> on you tube,he said it would save energy,and help the economy,by
> making jobs.
>
> Closer, but not quite. Here's the quote:
>
> "Our government now pays the highest energy bill in the world. We
> need to change that. We need to upgrade our federal buildings by
> replacing old heating systems and installing efficient light bulbs.
> That wont just save you, the American taxpayer, billions of dollars
> each year. It will put people back to work." [www.foxnews.com/politi.../]
>
>
> Now, when I read that I make my own determination of where it would
> "put people back to work." I take it to be far more in the installation
> of new systems as opposed to people going around replacing light
> bulbs.
>
> In any case, It's not anything close to "Obama actually said that
> changing light bulbs and heater systems in Federal buildings would
> save the economy."
>
> Fireball wrote: "are you one of those BO protection bloggers?" All
> you have to do is follow the link to my other comments to make up
> your own mind. Too much work? Or is your mind already made up?
You surely won't find anybody who had anything to do with founding this nation speaking of an "equitable country." You surely won't find anyone who laid the foundations of the freedoms we've had in this nation spewing such crap.
It's surely not in the Constitution. The only people who've ever come with this tripe are Karl Marx and his followers, and their views have enslaved hundreds of millions over the last 150 years and killed hundreds of millions more. Their claim to creating a more "equitable countries" has brought about one terrible world war and numerous death-filled conflicts around the world.
Why would any sane leader seek to bring about a more "equitable country" after the bane such doings have brought upon the world?
Where can you show the empirical evidence that will prove that trying to creat a more "equitable country" is truly a worthwhile endeavor?
Leftist rhetoric sells suckers, but the evidence shows the reality of what leftists claim they want is a bane full of damnation.
Freedom should be the first cry of every American, and they should all damn leftist social engineering, such as the type that brought about the recent Subprime Bustout that has nearly busted the nation, the banking system, and other sectors.
You might want to read up on your Thomas Paine. Specifically, "Rights of Man." From Taffel's forward:
"The most important aspect of the Rights of Man is that it reveals far more explicitly than any of his other works that at the core of Paine's ideology lies a belief that political and economic inequality is rationally indefensible and morally intolerable. It was on this principle that, when push came to shove, Paine would not give an inch, whereas his more pragmatic allies recognized that, in order to actually run a government, adherence to such a principle must be curtailed."
Then, quoting Paine: "'When it shall be said in any country in the world, my poor are happy; neither ignorance nor distress is to be found among them; my jails are empty of prisoners, my streets of beggars; the aged are not in want, the taxes are not oppressive; the rational world is my friend, because I am the friend of its happiness: when these things can be said, then may that country boast its constitution and its government.'"
Thomas Paine never ever believed or wrote that a government, such as the Republic his peers created, should go about trying to quell inequality among the economic levels. There is a difference between equality under the government and equality of wealth.
David Taffel can posit whatever belief he wants to put in Paine's mouth, but Paine in the "Rights of Man" was interested in men having equal rights under their government --- for God sakes by no means was he advocating the type of "equitable country" that Buffett Jr. was railing about.
Neither Paine nor anyone else of the 18th Century or early 19th Century would have endorsed curbing what the head of a business made --- much less taking part of those profits and giving them to the day laborers for the purpose of having an "equitable country."
Before you twist what I'm saying, let me point out that no one during that period wanted to keep the poor poor; what they wanted to do was to break them away from a tyrannical monarchy, give them freedom, and that freedom would provide them with the opportunity to gain status, wealth, or happiness in the world in pretty much any way they chose.
And I myself do not want to keep the poor poor, but neither do I want a government run by an Obama Executive Branch; a Nancy Pelosi, Barney Frank, Charlie Rangle, John Conyers, John Lewis, John Murtha, Rahm Emmanuel Congress; and a Christopher Dodd, John Kerry, Chuck Schumer, Diane Feinstein, Barbara Boxer, Harry Reid, Ted Kennedy Senate telling CEOs or otherwise what they can make. Do you?
BS, you are out of context on the subject and the time. In your obvious fanatical fervor to correct, you have entirely changed the face of the subject I was addressing.
Moreover, economic inequality is bred into our type of system, or at least the one we used to have, and it's in there for a purpose.
Our system tells folks on the lowest economic level that if they are capable of putting their noses to the grindstone, if they are willing to sacrifice, if they are willing to put out when others refuse to, then they can climb out of poverty and into a better life. Freedom is what gives them that opportunity --- not the government. Being poor ought to give people incentive to work their way out of that povery --- not sit around and envy what others have and try to figure out who to put in office that will take away from those they deem should not have and give to those they deem should have.
For you and particularly for Buffett Jr., this: "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy. The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries." (Winston Churchill)
I think he is influenced by people like Opera, B. Gates and Buffet much more then operation Push, I hope you would agree.
It has been proven World over that capitalist system is more natural system for human beings to thrive, China, India and Brazil are good examples to follow and what not to follow are North Korea as were China/India not so long ago.
However, I sympathize with your list of many B'sers, however it was good old boys from the country club or should I say ranch who got us in this mess and none of them were democrats and robbed us silly in broad daylight.
So I think your theory and practice of great patriots is out of whack a little bit.
On Dec 11 07:07 PM CLH wrote:
> Equality must be earned. I think there is nothing more immoral then
> taking from the hard workers and giving to the lazy.
Yes, I surely hope you are right about Obama, but I don't think you are.
Birds of a feather flock together, and look at Obama's past friendships. You won't find anybody who believes in government restraint, that's for sure.
As far as the Democrats not having anything to do with the current economic mess we're in (caused by the Subprime Blowout), with all due respect, you are dead wrong.
Here’s what happened.
In 1977 the Carter Administration and the Democrat Congress passed the Community Reinvestment Act (CRA)—this bill outlawed what the Left called "redlining" and mandated lending institutions to "lend equitably to minorities." (As Buffett Jr. said, we need a more "equitable country"; but this was more to buy votes rather than create economic equality.)
The Democrats claimed banks were encircling sections within their working areas where mostly minorities lived and then were refusing to lend money to anyone living within those red lines. This they claimed violated the Equal Credit Opportunity Act passed by Lyndon Johnson (LBJ) and a Democrat Congress in 1967.
Over the next three years, in fear of steep fines and lawsuits, banks lent money to contractors—subsidized by the federal government—to build low-cost housing for minorities and a small percentage of the lower-income White majority. Cheap apartments and houses cropped up like weeds in an untended garden all over the nation in the late 1970s.
The federal subsidies in turn lured all types of companies, such as Duke Power (a power company supplying power to NC, SC, and parts of GA) into the homebuilding business. It was all a continuation of LBJ’s "War on Poverty" and his "Great Society"—a socialist concept invented to help the Democrats buy the minority vote permanently.
When Ronald Reagan got elected in 1980 this type of lending and building came to a halt over most of the nation—except in states that continued to subsidize contractors for such building.
Indeed, the subsidies provided builders with a no-lose situation, for whether the homes sold or not, either the state or Federal Government would pay for most of the expenses for building—or they would provide at least the down payment (and sometimes more) for minorities to buy the home.
When the Clintons got elected in 1992, the first thing they did was to try to get Congress to pass a "$30 billion stimulus package" for certain cities. It was such a blatant attempt to repay city governments that had promoted the Clintons’ campaign that even the Democrat Congress declined to go along with it. That, however, did not deter the Clintons.
The Clintons scurried to find other ways to repay their constituents and buy more votes for the 1996
election—remember, the Clintons lost heavily in rural areas but won a large majority of the votes in cities and carried as much as 98% of the vote in areas where minorities lived. The media didn’t tag Clinton as the "first Black President" for no good reason.
The first move the Clintons' HUD made was to strengthen the rules within the CRA and give Federal Housing bureaucrats the fangs to bite the financial institutions that did not comply—these new powers allowed federal bureaucrats to order financial institutions to create a new lending vehicle, which became known as the subprime loan. These are loans made almost exclusively to minorities whose repayment rating is far below normal government required lending regulations.
Whites—unless on welfare or disabled—still had to qualify according to the much stricter lending standards laid down by the Federal Depository Insurance Corporation (FDIC) after the Savings and Loan boondoggle of the late eighties and early nineties caused the government to have to pile approximately $1.8 trillion onto the National Debt to cover the cost of the bad loans the Savings and Loan Industry had made.
The changes to the CRA put into place new regulations that forced lenders to make high-risk loans to applicants that could not previously qualify. In areas where old-fashioned, conservative principles had governed lending standards, lenders now had no choice other than to lower their guidelines and make loans that—otherwise—they would never have approved. The alternative was to face fierce federal fines and burdensome lawsuits.
By the time the Republicans took over the Congress in 1994, the Clintons were well on their way to transferring hundreds of billions of dollars to their minority constituents through their new lending rules—and it was costing the government zero. But the hell to pay was on its way.
Thousands of banks, however, were still reluctant to dive into the subprime cesspool. For they knew that such lending practices portended terrible trouble.
Here are some of the rules qualifying the mandates banks received from the Clinton bureaucrats:
Regarding Credit History: Lack of credit history should not be seen as a negative factor in lending money to minorities. In reviewing past credit problems, lenders should be willing to consider extenuating circumstances.
Regarding Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to home ownership for minority applicants. Lenders should begin to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs.
Regarding Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits. (Source: the Wall St. Journal)
Conservative animals that bankers normally are, they did not willingly accept these new criteria. The Clintons therefore sent out notices such as the following to threaten lending institutions:
"Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and up to $500,000 or 1 percent of the creditor’s net worth in class actions." (Source: the Wall St. Journal)
Still not satisfied with how banks were complying with their plan to transfer billions of dollars to their minority constituents, the Clintons sicced their grisly bear running the Justice Department—one Ms. Janet Rhino—on about 1500 hundred banks with federal lawsuits aimed at forcing them to adhere to the Clintons’ new federal lending mandates. HUD under Andrew Cuomo also sued lending institutions around the nation to force them to lend money to minorities.
These banks, of course, got together and hired a group of lawyers who did what lawyers do: they settled with the Justice Department. According to their asset value, each bank had to set aside certain amounts of funds to be lent strictly to minority applicants.
The settlements came to the forefront sometime in 1998.
The result of these mandates was that "loan brokers" (go-between parasites that searched for loans for unqualified applicants) popped up like hot corn kernels.
To aid the banks in hiding the quality of loans they were making, the Clintons allowed them to make their loan portfolios more opaque. This kept investors in the dark as to what kind of shape banks were in regarding their loans. They also allowed lenders not to have to expose their writedowns every year, as they previously had to do—now they were able to hide billions in bad (or delinquent) loans from shareholders and potential investors. The problem is, however, that not every investor—by any means—knew this had taken place.
These lax regulations had forced me completely out of investing in banks by the late 1990s. In fact, when I learned that First Union had to set aside $5 billion strictly for minority lending, I sold my stock and haven’t owned a bank since. It's not that I was concerned about minorities; it was that the Democrats were forcing banks to lend to people whether they could pay or not.
After 9-11 most Americans still don’t realize it, but they almost lost their economy then: people stayed home, they didn’t travel or buy, and they didn’t borrow. The whole system was about to collapse when Bush managed to push through investing and business incentive tax cuts and the Fed cut interest rates to an all-time low of 1%.
Both helped to save the American economy, but the latter also exacerbated the subprime problem, because the parasitic loan brokers became more than go-betweens; they began advertising and soliciting loan applicants. In this respect, greed indeed controlled this business—but remember that banks had to make the loans because of the mandates.
With interest rates so low, money began to flood all over the nation, and that’s when greed entered the lending field. Although loan requirements had already been set far below normal standards, loan brokers began fudging the applications for not only minorities but other low-income people—who could now acquire a loan whose payment they had no possible way of paying.
The mandated lending rules, low interest rates, and lax lending standards caused a building boom and a lending boom that encouraged builders to build and build and build, until now the nation has such a glut of homes on the market that real estate industry analysts say it will take until sometime late in 2010 to sell off.
The Clintons, however, were still not satisfied. To the last day of their Administration, the Clintons were pushing the two Democrat-created institutions called Fannie Mae and her brother Freddie Mac to buy more subprime mortgages. They did—with Clinton-appointed flunkies at the helm of both entities.
Because of mismanagement, an accumulation of hundreds of billions in worthless minority loans, and enormous salaries along with scrumptious perks for the bureaucrats running them, the government recently had to nationalize both Freddie and Fannie. I believe this will cost taxpayers a minimum of $200 billion this year—and hundreds of billions more over the upcoming years.
Through the politicizing of Fannie and Freddie, the Clintons accomplished far more for themselves than buying votes, transferring wealth, and paying off constituents. Clinton cronies appointed to run the two monsters padded their pockets with millions of dollars, and Fannie and Freddie became major contributors to the Clintons and other Democrats. The top four recipients have been Democrat Senators Chris Dodd, Barack Obama, John Kerry, and Hillary Clinton—in that order.
Worse even is Franklin Raines—a Democrat crony—whom the media purposely never mention. The Clintons had him appointed head of Fannie Mae in 1999, and he proceeded to convert the entity into his personal piggy bank. By the time he had packed his billfold full and scampered off under a fuzzy fog of rigged balance sheets, overstated earnings and hidden loan losses, he carried with him a golden goblet overflowing with honey—worth $100 million.
Because of all of the above, home prices have crashed, causing millions of new homeowners to be sitting in homes that are worth far less than they paid for them. And subprime borrowers—perhaps 2.0 million of them—are sitting in homes they’ve not made a payment on in months (and sometimes years) and others have never made even the first payment on.
More proof that the Democrats caused the subprime debacle:
See this 1999 article in the NY Times that documents the Clintons were behind pushing Fannie Mae into making more subprime loans to minorities who could not qualify for conventional loans.
Here is a quotation from that article:
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people. . ."
Here is the site for the entire article, which goes on to explain how risky subprime loans were: query.nytimes.com/gst/...
In 2003 Treasury Secretary John Snow testified before Congress that if something weren't done, the subprimes were going to cause terrible problems for the nation. The Senate Republicans sponsored a bill, led by none other than John McCain (who seemed not to remember this during the presidential campaign) to reregulate subprime loans, but the Democrats blocked the bill.
Barney Frank and Dick Schumer told John Snow that there was no problem with the subprimes and that the nation actually needed more lending in that area.
But you are the one twisting words here. Perhaps you should actually read the latter parts of Rights of Men, wherein Paine lays out proposals for a quite extensive revision of then-current taxation, with the goal of (depending on your preferred rhetoric) ending poverty, providing a social safety net, or establishing (a touch of) socialism. Does he say that the government should try to make everybody economically equal? Of course not. But then again, neither did "Buffett Jr."
You said: "You surely won't find anybody who had anything to do with founding this nation speaking of an 'equitable country.'" I have shown your statement to be false. That you disagree with Paine's written words is fine; I disagree with a great number of them as well. This is irrelevant to my point, which was that your statement was incorrect.
Wow, this will take a while. My apologies to those who don’t give a rat’s ____. While I'm no expert on this history, I can say...
ArtfulDodger wrote:
"...the Equal Credit Opportunity Act passed by Lyndon Johnson (LBJ) and a Democrat Congress in 1967."
Wrong. The ECOA was passed in 1974 and signed into law by President Nixon.
AD: "It was all a continuation of LBJ’s "War on Poverty" and his "Great Society"—a socialist concept invented to help the Democrats buy the minority vote permanently."
How would you describe Nixon's wage and price controls and Bush's semi-nationalization of banks, both of which are more socialist policies than any LBJ program? If LBJ's intentions were so cynically political, why is he said to have uttered these words after signing the Civil Rights Act: "We have lost the south for a generation."
AD: "When Ronald Reagan got elected in 1980 this type of lending and building came to a halt over most of the nation—except in states that continued to subsidize contractors for such building."
Sure, and when Reagan got elected in 1980 the economy immediately went into the deepest recession since the 1930s. Care to imply a cause-and-effect relationship there, too?
AD: "...the Clintons [tried] to get Congress to pass a '$30 billion stimulus package' for certain cities. It was such a blatant attempt to repay city governments that had promoted the Clintons’ campaign that even the Democrat Congress declined to go along with it."
Wrong. The proposal included $15 billion for highway construction, summer jobs, community development, jobless benefits, education programs, and projects for treating waste water, and $15 billion for business tax credits for equipment investment. Faced with a certain Republican filibuster, the proposal was abandoned.
AD: "...the Clintons (sic) lost heavily in rural areas but won a large majority of the votes in cities and carried as much as 98% of the vote in areas where minorities lived."
Which is pretty much exactly the same as every Democrat.
AD: "The media didn’t tag Clinton as the "first Black President" for no good reason."
I believe it was Toni Morrison that "tagged" him with that, and that she did so because she saw parallels between his treatment during the impeachment and a general societal assumption of guilt in accused black men. I might not have the reasoning quite right.
AD: "The first move the Clintons' HUD made was to strengthen the rules within the CRA and give Federal Housing bureaucrats the fangs to bite the financial institutions that did not comply—"
Pretty sure this is inaccurate. According to testimony by Sandra Braunstein of the Fed, there was no substantial change to CRA between 1992 and 1995, when: "The CRA regulations were substantially revised again in 1995, in response to a directive to the agencies from President Clinton to review and revise the CRA regulations to make them more performance-based, and to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden. This directive addressed criticisms that the regulations, and the agencies' implementation of them through the examination process, were too process-oriented, burdensome, and not sufficiently focused on actual results. The agencies also changed the CRA examination process to incorporate these revisions."
AD: "...these new powers allowed federal bureaucrats to order financial institutions to create a new lending vehicle, which became known as the subprime loan."
Tell me, how is it that some banks, like USB and WFC, had almost no exposure to subprime loans? Fact is, some banks and other lenders did a lot of subprime lending (which was extraordinarily profitable while the housing bubble was expanding) and others did not. Countrywide did large amounts of subprime lending, and was extremely profitable until last year. There was a huge financial incentive to lend to anybody you could when house values were increasing as they were.
Fed Governor Ed Gramlich, 2004: "The growth in subprime lending represents a natural evolution of credit markets. Two decades ago subprime borrowers would typically have been denied credit. But the 1980 Depository Institutions Deregulatory and Monetary Control Act [passed by Democrats - ed.] eliminated all usury controls on first-lien mortgage rates, permitting lenders to charge higher rates of interest to borrowers who pose elevated credit risk, including those with weaker or less certain credit histories. This change encouraged further development and use of credit scoring and other technologies in the mortgage arena to better gauge risk and enabled lenders to price higher-risk borrowers rather than saying no altogether. Intense financial competition in the prime market, where mortgage lending was becoming a commodity business, encouraged lenders to enter this newer market to see if they could make a profit."
AD: "These are loans made almost exclusively to minorities..."
Nonsense. Hopefully due to ignorance rather than racism, but nonsense nonetheless. In 2005 for example, about 17% of white borrowers got higher-cost mortgages. Perhaps "almost exclusively" means something different to you than to me.
AD: "Whites—unless on welfare or disabled—still had to qualify according to the much stricter lending standards laid down by the Federal Depository Insurance Corporation (FDIC)..."
Please cite anything – anything at all - supporting this claim.
AD: "...after the Savings and Loan boondoggle of the late eighties and early nineties caused the government to have to pile approximately $1.8 trillion onto the National Debt..."
More nonsense. The total assets – which is the most that possibly could have been lost - of all S&L's that were closed by the government was $519B. In liquidating these institutions, the total cost to taxpayers was about $153 billion. [www.fdic.gov/bank/anal...]
An interesting question relates to the moral hazard here. Did today’s banks learn from yesterday’s S&Ls that the government would prop them up if they got into real trouble? If so, could then liberals make an argument that this whole problem originated with Reagan? Nah, I don't think so either.
AD: "The changes to the CRA put into place new regulations that forced lenders to make high-risk loans to applicants that could not previously qualify..."
Hope my boots are high enough. Janet Yellen, President, Federal Reserve Bank of San Francisco, 2007: "There has been a tendency to conflate the current problems in the subprime market with CRA-motivated lending, or with lending to low-income families in general... Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households."
AD: "Here are some of the rules qualifying the mandates banks received from the Clinton bureaucrats:"
I'll be comparing the following paragraphs with the actual text from the booklet published by the Boston Fed titled 'Closing the Gap: A Guide to Equal Opportunity Lending,' which can be found here: www.bos.frb.org/commde...." I'll be adding emphasis. BTW, the Federal Reserve is not exactly chock-a-block full of political appointees, but whatever.
AD: "Regarding Credit History: Lack of credit history should not be seen as a negative factor IN LENDING TO MINORITIES."
Actual text: "Lack of credit history should not be seen as a negative factor. Certain cultures encourage people to 'pay as you go' and avoid debt. Willingness to pay debt promptly can be determined through review of utility, rent, telephone, insurance, and medical bill payments."
AD: "Regarding Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to home ownership FOR MINORITY APPLICANTS."
Actual text: "Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to homeownership BY LOWER-INCOME APPLICANTS."
AD: "Lenders SHOULD BEGIN to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs."
Actual: "Lenders MAY WISH to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs."
You might want to read the booklet. It's not nearly as scary, or racist, as you think.
AD: "Still not satisfied with how banks were complying with their plan to transfer billions of dollars to their minority constituents..."
You're pathetic.
AD: "...each bank had to set aside certain amounts of funds to be lent strictly to minority applicants."
I'm willing to bet that you've got this wrong, too. Please cite a source.
AD: "To aid the banks in hiding the quality of loans they were making, the Clintons allowed them to make their loan portfolios more opaque...They also allowed lenders not to have to expose their writedowns every year, as they previously had to do—now they were able to hide billions in bad (or delinquent) loans..."
Really? Do tell how. With citations.
AD: "After 9-11 most Americans still don’t realize it, but they almost lost their economy then: people stayed home, they didn’t travel or buy, and they didn’t borrow. The whole system was about to collapse when Bush managed to push through investing and business incentive tax cuts and the Fed cut interest rates to an all-time low of 1%."
This is almost unbelievably wrong. You write like the post-9/11 period was bad like today is bad. The 2001 recession was the shortest and mildest since WWII, lasting just two quarters, and real GDP rose by 0.75% in 2001, by 1.6% in 2002, and by 2.5% in 2003. Mortgage borrowing grew at a real rate of 7.4% in 2001, 10.3% in 2002, and 9.4% in 2003. In the economy, 9/11 was a blip.
AD: "Both helped to save the American economy...”
What country are you talking about? The economy, by every measure, was growing. The Fed lowered interest rates not because the economy was in trouble, but because inflation was in check. With inflation low, there was no reason NOT to lower interest rates.
“…but the latter also exacerbated the subprime problem...but remember that banks had to make the loans because of the mandates.”
This is such pure BS. Cheaper money means lower rates, which means more people can afford to borrow (or at least, more people thought they could afford to borrow, and lenders were willing to think more people could afford to borrow). With a larger market, more non-bank firms were entering the market constantly to chase profits, and the ones who made the most sub-prime mortgages made the most money, because more buyers meant increasing prices.
By the way, if you can blame Clinton bureaucrats in the 1990s, why can’t you blame Bush bureaucrats in the 2000’s, when most of the failed loans were made? Oh, sorry, I forgot – this is all about putting blame solely on Democrats.
AD: “The Clintons, however, were still not satisfied. To the last day of their Administration, the Clintons were pushing the two Democrat-created institutions called Fannie Mae and her brother Freddie Mac to buy more subprime mortgages. They did—with Clinton-appointed flunkies at the helm of both entities.”
So you tell this story, and you lead it right up to about 2005, and then say that what was happening then was the Clinton administration’s fault? Brilliant. Also, please note that CEOs of FNM and FRE are not political appointments, though the President does appoint directors to both. I believe all of the recent CEOs were qualified. Incompetent, perhaps, criminal, perhaps - but qualified.
But to the point, the vast majority of losses to date on all mortgages, including subprime mortgages, are on those made after 2004, when FNM massively increased its participation in the subprime market. How are you going to blame Clinton for that? I’m sure you’ll find a way.
AD: “Because of mismanagement, an accumulation of hundreds of billions in worthless minority loans…”
This is a common misunderstanding. The loans are not worthless; they are worth what the underlying property is worth. Oh yeah, and there’s that pesky racism question again, since I’ve already shown that there are plenty of white subprime borrowers.
AD: “the government recently had to nationalize both Freddie and Fannie. I believe this will cost taxpayers a minimum of $200 billion this year—and hundreds of billions more over the upcoming years.”
And again, you’re wrong. From which orifice did you pull the $200 billion number?
“Fannie and Freddie became major contributors to the Clintons and other Democrats. The top four recipients have been Democrat Senators Chris Dodd, Barack Obama, John Kerry, and Hillary Clinton—in that order.”
Funny, I see Hilary at 9th on that list. You should have left her off – then you wouldn’t have me pointing out Republicans Robert Bennett at 4th, Kit Bond at 5th, and Richard Shelby at 6th, not to mention the two Republican House members at the top of that list (Spence Bachus and Roy Blunt), all of whom received more from Fannie and Freddie than Hilary. (www.opensecrets.org/ne...).
Pretty plain your research methods are… well, weak.
“Worse even is Franklin Raines…”
Yes – terrible. But his corruption is unrelated to the mess we’re in now.
“Because of all of the above, home prices have crashed…”
No. Because of the above, home prices skyrocketed. The crash is the correction.
“...subprime borrowers—perhaps 2.0 million of them…”
Here we are, the critical point. The median home price in September 2007 was $206,700. A year later it’s $183,300. For simplicity, let these represent the mean of the subprime borrowers’ home values. In the last year, that makes $47B of lost value for subprime borrowers. Should that amount of losses cause FNM and FRE fail, given mark-to-market accounting rules? Probably. Should it cause some banks to fail? Yes. Should it cause systemic failures in the financial system? Absolutely not. You need unregulated credit default swaps for that.
“More proof that the Democrats caused the subprime debacle: See this 1999 article…”
Read the article. Here’s a chunk: “…one study indicates that 18 percent of the loans in the subprime market went to black borrowers…” Now, this makes your previous statements look more like racist rants. But maybe you just didn’t read the article past the part that indicated that the Clinton administration wanted to expand home lending.
AD: “…documents the Clintons were behind pushing Fannie Mae into making more subprime loans to minorities...”
Actual text: “…increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people…” More racism?
“In 2003 Treasury Secretary John Snow testified before Congress that if something weren't done, the subprimes were going to cause terrible problems for the nation.”
Not true. The Bush administration was seeking an expanded regulatory role, but it was due more to the failure of the GSEs to meet accounting standards than to any other single reason. You might want to read the testimony, rather than regurgitating somebody else’s assessment of it: www.ustreas.gov/press/....
By the way, the related bill (HR 2575) never made it out of committee. For balance, I feel the need to point out that at this point, Republicans controlled the House, the Senate, and the White House. And they didn’t even get a bill to the floor.
“The Senate Republicans sponsored a bill, led by none other than John McCain (who seemed not to remember this during the presidential campaign) to reregulate subprime loans, but the Democrats blocked the bill.”
Pretty sure you’re wrong, yet again. First off, the effort (2005, SR 190) was not led by McCain. More importantly, it had nothing to do with subprime lending; it was along the same lines of the 2003-4 “effort,” which was related to the accounting problems and earnings restatements of the GSEs. Go read the text.
“Barney Frank and Dick Schumer (sic) told John Snow that there was no problem with the subprimes and that the nation actually needed more lending in that area.”
Since John Snow didn’t mention “subprime” in his prepared 9/10/03, 10/16/03, or 4/13/05 remarks, I’m doubtful that these statements ever occurred. Please, prove me wrong. As for the nation needing more lending - this was an area of agreement. The Bush administration’s stated goal was to increase home ownership by (as I recall) 5.5M.
Congratulations! This was as error-filled a posting as I can remember. And if anybody else is still reading, I hope you don’t consider it wasted time.
but if i had to speculate on which party was presuring fan and fre and banks to loan to minorities and/or low incomes with bad credit, i would have to say it was the dems. it sounds like something they would do to me.
the new york times article says as much. so for bs to go to so much trouble to prove otherwise doesn't make much sense to me.
"Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent."
ny times query.nytimes.com/gst/...
for bs to imply that ad is a racist for pointing this out seems wrong too. bs acts surprised that the government could be behind promoting one race over another.
the feds order cities and states to have set asides for minorities, this includes women. companies with so many employees must hire minorities. i think i could go on with this if i so felt inclined.
so what's the big deal? this type of thing goes on all over the place.
bm
AD plainly stated that subprime loans are made "almost exclusively to minorities," but his own cited source said "one study indicates that 18 percent of the loans in the subprime market went to black borrowers." Again and again in his posting, AD misquoted source material, changing terminology meaning "low income" to "minority." Make your own judgments.
It is certainly true that minorities often are disproportionate beneficiaries of government programs targeted to benefit low-income people. But this is more often than not because minorities make up a disproportionately high percentage of low-income people.
Couple of things about the stats you mentioned:
"...during the economic boom of the 1990's... the number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998... [and] the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent."
Without the underlying data, this is marginally useful at best. These increases are most likely explained best by socioeconomics rather than race, as credit began to be extended to less credit-worthy borrowers. As a group, Hispanic Americans are somewhat less creditworthy than African Americans, who as a group are less creditworthy than Asian Americans. So naturally, if lending standards are lowered, the benefit will be captured more by those on the bottom of such a scale than by those on the top.
It would be useful to know the percent increase during the time period for white borrowers, but they didn't provide that.
The federal government, and other governments, certainly have programs that specifically target minorities and women. It's not necessary to overstate them, however, which is what's been done here. Re-read AD's post - the thrust of the argument is that overzealous government regulation forcing lending to minorities is the cause of the current market dysfunction. The facts don't bear this out in the least, and the argument is either ignorant or racist. I invite AD to tell us which.
Dude, you sold too early...this thing will run to 19 within a month.
Taking from the rich to give to the poor - that's what I don't like
It would be a breath of fresh air after over 25 years of Reaganomics -
Taking from the poor to give to the rich
If you believe that all the wealth of the rich has been "earned" by them you are very naive. What about the value of labor. Maybe the rich should be a little more grateful for the labor that the rich earn most of their wealth off of.
If you don't think there has been a redistribution of wealth to the rich you are doubly naive.
Google distribution of wealth Pew Foundation to learn how much workers have been screwed for the last 25 years. Reaganomics has left 80% of us behind.
The entire system is rigged to make the rich richer. Wake up and smell the coffee.