Roubini Attacks Bailout, But Misses Boat on Regulation

Before we get to addressing Roubini's blaming of the mess we are in on "free-market laissez-faire" philosophy, let's take a look at calls for Paulson and Bernanke to resign, and one other post on "Socialism For The Rich".

Inquiring minds should consider Senator Bunning Says Paulson Acts Like Socialist, Should Resign:

Senator Jim Bunning said Treasury Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac, is acting like China's finance minister and both Paulson and Federal Reserve Chairman Ben S. Bernanke should step down.

"I sincerely believe that Henry Paulson and Ben Bernanke should resign," said Bunning, a Republican from Kentucky on the Senate Banking Committee. "They have taken the free market out of the free market."

"We no longer have a free market in the United States, we have a government controlled free market," Bunning said in an interview. Paulson, a former chief executive officer of Goldman Sachs Group Inc., "is acting like the minister of finance in China."

"No company fails in communist China, because they're all partly owned by the government."

Socialism For The Rich

Nouriel Roubini launched a scathing and well deserved attack on Paulson today: Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America).

The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies, the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trends was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.

Today instead, the US has performed by far the largest nationalization in its history. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most leveraged LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).

" Socialism" is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.

This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed – untempered by fear of loss or of punishment – leads to credit bubbles and asset bubbles and manias and eventual bust and panics.

The ideologue “regulators” who literally held a chain saw at a public event to smash “unnecessary regulations” are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions ...

Only The Beginning

Minyanville's Mr. Practical weighs in with Death of Fannie, Freddie Only the Beginning. Following is a snippet but inquiring minds will want to read the entire piece.

The next devaluation (after the deflation cycle which is just now going from the denial phase to the "get me out" phase) will be a doozy. This is when the Fed plays its last card (probably not for a year or two) when the deflation cycle reaches bottom and they must monetize all debt.

Misguided Calls For More Regulation

Roubini is correct about what is happening. We are indeed rapidly becoming the United Socialist State Republic of America. Furthermore, Roubini has been in front of this mess for as long as anyone as to what will happen. I have high respect for Roubini and have learned from him.

However, as right as he is about what is happening, and as right as he is about what is coming, Roubini cannot possibly be more wrong about what went wrong and who is to blame. I do not believe he will take what I am about to say personally. It certainly is not meant to be taken personally. But ....

The problem is not the "fanatically and ideologically zealot free-market laissez-faire administration."

Nor is the problem "ideologue regulators who literally held a chain saw at a public event to smash unnecessary regulations”.

It is a simple truth that the solution and the problem cannot be one and the same. Ironically, Roubini rails against the lack of regulation when it was regulation that created this mess!

The fact of the matter is there does not need to be regulation of Fannie Mae (FNM) or Freddie Mac (FRE) because neither should have existed in the first place. It was government meddling in the free markets that created Fannie and Freddie.

Government meddling in the free market will always blow up. No matter how many government regulators one threw at Fannie or Freddie, both were going to blow up sooner or later.

Ownership Society Mentality

Ownership society mentality is to blame. The HUD, FHA, Fannie, Freddie, and hundreds of affordable housing programs all came out of "ownership society" type thinking. This culminated into what Roubini is now masterfully railing against.

Sponsorship of such entities creates a problem that regulators can never get right. The bureaucratic mission inevitably takes on a life of its own. It is foolish to expect otherwise.

Government promotion of housing put an artificial bid on housing that a free market never would have. That artificial bid had the exact opposite effect of what was intended. In other words, every government sponsored affordable housing program raised the price of housing. Regulation could not fix that basic flaw and eventually the model blew up with ever increasing efforts to keep the ponzi scheme operative. Ponzi schemes always blow up as soon as but not before the pool of greater fools runs out.

Insolvency at the FHA

Some blame the problems of the FHA on the fact that the FHA was forced to take seller financed down payments. NO! The problem was and remains the very existence of the FHA itself. No possible amount of regulation or regulators can circumvent every problem or distortion that may arise by the creation of programs that should never have existed in the first place.

The solution to all the above problems is simple: Eliminate government sponsorship of housing. In other words, abolish the FHA, the HUD, Fannie Mae, Freddie Mac, Ginnie Mae, and every silly program on the books to create affordable housing.

Many blame lack of regulation for the incredible fiasco at the rating agencies. The simple reason Moody's, Fitch, and the S&P do such a miserably poor job is government sponsorship.

I am stunned by the ridiculous solutions that some people I otherwise respect have come up with for this problem. The solution is easy: End government [SEC] sponsorship of the big three. It is far past Time To Break Up The Credit Rating Cartel.

If Moody's, Fitch, and the S&P had to survive based on how good their ratings were instead of a model where the SEC says they have to rate everything, the problem with rating agencies would be cleared up overnight. Once again, no amount of regulation can possibly cure flaws that arise out of government sponsorship.

The Fed Is the Problem

Senator Bunning is calling for the resignation of Paulson and Bernanke. This is easily understandable because Bernanke is nothing but a complete academic fool. However, Bernanke's resignation is the wrong solution. If Bernanke resigned he would be replaced by some other clown with some other bureaucratic mission that would cause a different set of problems down the road.

It is critical to realize that Bernanke, although a fool, is nothing but a scapegoat. The problem is the creation of the Fed itself, a blatant intrusion on the free market. We do not need to get rid of Bernanke directly. The correct solution is to abolish the Fed itself. Sadly, the only one in Congress that seems to understand this is Ron Paul. Even sadder is the fact that highly respected economists cannot or will not see this problem for what it is.

Sweeps

The Greenspan Fed, ever wanting to "help" banks make more profits, instituted a policy of sweeps. For a primer on sweeps please read Where's the Cash?. Inquiring minds should also read You Know The Banking System Is Unsound When....

In the above article I listed 25 reasons the banking system is unsound.

Here are points 1, 24, and 25.

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

Every penny has been swept out and lent out (10 times over) thanks to the Greenspan Fed and fractional reserve lending. What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Is the problem lack of regulation, or is the problem fractional reserve lending and authorizing someone like Greenspan to allow something like sweeps?

Securitization Problems

The originate to securitize model has blown sky-high. Are "free-market laissez-faire policies" to blame? The answer is no. In a free market with a sound currency, the originate to securitize model, aided and abetted by the rating agencies, would never have occurred in the first place.

The same holds true for Citigroup's (C) $500 billion to $1 trillion it is hiding off balance sheet in SIVs. The same is true for absurd leverage that is going to send Lehman (LEH) to bankruptcy or bailout.

None of the above can be blamed on "free-market laissez-faire policies". Every one of them can be blamed on fractional reserve lending and the ability to create money (credit really) at will by borrowing it into existence.

Roubini's Brilliant Rant

Nouriel Roubini made a brilliant rant. It was clever and catching. He is also correct on one major point: We are indeed becoming the United Socialist State Republic of America.

However, one of the reasons we are becoming the USSRA is that highly respected persons such as Roubini blame failures on the free market instead of where the blame lies: misguided regulation and manipulation of the free markets.

Instead of correcting the problem, which in this case would mean elimination of the Fed, elimination of the GSEs, elimination of government sponsorship of the rating agencies, elimination of the FHA, etc etc etc, Roubini wants to add regulation on top of regulation on top of regulation. The foolishness of such a scheme should be self apparent. Who is regulating the regulator responsible for overseeing the regulator?

My Challenge To Roubini And Others

Instead of more regulation, let's work on coming up with a solution and a timetable for what ails the US. That solution needs to be based on free market ideology as opposed to never-ending regulation. In other words, how do we dismantle the system in place today, as fast as possible, with the minimum amount of disruption? At a bare minimum how and in what timeframe can the Fed and fractional reserve lending be eliminated or phased out with the least possible disruption?

Nouriel, are you game?

Comments

[Jason Rines...:]

As per norm Mish, you are dead on. This can only be solved in Congress. And this Congress will more or less be the same this time around. As pain mounts for both Main St. and now the Investment community at large, a voter revolution will occur in 2012. It is to this purpose myself and a few other investors are working on RagingDebate.com . It's in the early stages.

Meanwhile, there is now a probability of a Black Swan event in either 2010 or 2011. I recommend every citizen has sixty days food/water supply and any meds needed. The entire house of cards may fall and if it does, ROI will be the last thing on people's minds. I hate that I have to even recommend such to citizens but as Ben Franklin said 'it's better to have it and not need it then need it and not have it'.

2008 Sep 10 11:38 AM

[Philman:]

Mike, you are right on!

Close down the Fed. Interest rates should be set by the market.

Close down the Exchange Rate Stabilization Fund, which was created in 1933 with the winnings from Roosevelt's confiscation of all the privately owned gold in America. That was an unconstitutional act, and all the gold should be returned to the descendants of its owners. Exchange rates must be set by the market. If America becomes competitive, it will sell its goods, and have a balance in trade, or a surplus, and there will be no need for the kind of government intervention that is happening now.

2008 Sep 10 11:44 AM

[greedy bond...:]

The government move agains FNM and FRE made the rich richer, the shorters that bring companies stock prices down so low that they cannot raise capital...and then must fail or be bailed out. The problem here is the MARKET which allows people to sell shares they don't own. Those are the RICH people. Most common everyday joe's don't use shorting to make money. they invest for the long haul. The investors , teachers mutual fund holders, pension fund that owned the common stock are the losers.

What does this bode for GM, LEH and others that require capital raises.....no way you will get everyday people to invest....

2008 Sep 10 12:41 PM

[Jason Rines...:]

It means that more existing companies will go private and it means that start-ups or early stage will stay that way. It means that business will go back to being about fundamentals. All a good thing. What is not a good thing is the pain and heavy lifting required to normalize our economy. That is of course easier said then done. However, I do have faith in my countrymen just starting to get off the couch and begin paying attention for the first time in many, many years.

2008 Sep 10 01:17 PM

[HARM:]

Mish,

Like many people, you seem to be confusing old-school "regulation" (trust-busting, policing fraud, coercion and market manipulation, setting reasonable limits to business practices, "level playing field" stuff) with corporate socialism, which is NO REGULATION on the way up, but massive BAILOUTS (for the rich) on the way down, as Roubini and others have correctly pointed out.

The current business model in the U.S. is not so much "regulated capitalism", or even Soviet-style socialism, it's naked corporate socialism, mixed in with kleptocracy. Some have argued it's really closer to national socialism (a.k.a. fascism), and many of those arguments are compelling.

Examples of real "regulation": Trust-busting, outlawing fraud, coercion, insider trading, bribery, pump-and-dump. Preventing companies from dumping toxic waste in waterways (tradegy of the commons), prohibiting slave/child labor, requiring employers to carry worker's comp/injury insurance, whistleblower protection laws, requiring full documentation of borrowers, setting reserve requirements for banks, FDIC insurance for ordinary depositors.

Examples of corporate socialism and kleptocracy: Bailouts for the rich and well connected, losses for everyone else. Fed Funds rate set below the prevailing rate of inflation, cash-for-trash programs ("free" money for banksters). Extreme laisseze-faire approach to asset/credit bubbles on the way up, tacit --or even explicit-- approval of large-scale fraud, deliberate non-enforcement of existing regulations, no limits to margin trading, taxpayer underwriting of losses, generous tax credits/deductions for speculators, quasi-"private" entities (GSEs) that use their monopoly powers to squeeze out the truly private market players.

Let's not throw the baby out with the bath water just yet.

2008 Sep 10 01:54 PM

[outtafavr:]

I'm afraid there is no way to dismantle the current system in an orderly fashion. The system is currently on life support and I believe there is substantial risk that the end may involve significant disruption.

Meanwhile, the socialist/class envy/every man a king/utopians (User 256999 this is you) remain at the helm. Even Dr. Roubini is afraid to take them on, but Michael Shedlock is not.

Many thanks to you, Michael, for your excellent analysis. Hopefully, those who construct the next system will have similar insight into America's sins of the past.

2008 Sep 10 02:54 PM

[mplaut:]

Can the markets fix whatever is wrong? Yes, of course.

Will it cause pain? Yes, a lot.

Do markets working on their own develop problems that need to be fixed? Yes, all the time.

It is simplistic to argue that if regulation brought on the problems, then it should not be allowed to fix them. For one, unfettered markets will also bring problems that they could fix.

The premise of regulation was never that no problems will arise. It is that regulation will correct the problems with less pain than the markets.

IMO so far regulation has muddled through, and a lot of pain has been avoided.

2008 Sep 10 03:33 PM

[User 86999:]

While I agree with the MS thesis that Fed itself and all FNM/FRE style entities were a problem to begin with, I will interpret Dr. Roubini's complaint about lack of regulation when applied to cooked books at those institutions. When the top forensic accountants are still struggling to correctly figure out what exactly is where in assets/liabilities, we have a problem. And of course FNM/FRE are just the tip of the iceberg; wait till an army of others start getting exposed with all their Level III assets. When the regulation allows you to hide your deeds with creative financial engineering and rewards the fat cats at the top of the institutions with millions of dollars in compensation and severance packages, you need to bring the regulation in line!

2008 Sep 10 06:53 PM

[outtafavr:]

I mentioned socialist and class envy, and the next two posters appeared in that exact order! Awesome fellas! Thanks for your misguided input!

2008 Sep 10 07:01 PM

[dlaw:]

I heard Roubini just two night ago, talking about $120 oil and a falling dollar.

Apparently he doesn't get out much.

Here' is the rule of markets:

There must be a system to audit the traded inventory or the market will collapse from cheating.

That is the most basic truth of markets and anarcho-capitalist fantasies are just that - fantasies.

When people try to create unregulated markets, the results are perfectly predictable: start with the Credit Crunch, next Enron, then keep going back in time to every market crisis there has ever been. You will find unaudited inventory.

The idea that fiat capital is the problem is just silliness.

If it was true, gold wouldn't be headed through $700.

2008 Sep 10 07:30 PM

[bsharvy:]

Jim Bunning is pompous *&^. He's a ranking member of the Senate committee on banking and housing, blaming everyone else for the worst banking and housing crisis in half a century. Well there's a shocker: a politician blaming everyone else. Maybe if he had been a little more of a "socialist" and actually regulated banking and housing, there wouldn't be a need for bailouts. He's doubly pompous for his remark about no longer having a free market. The US has never been a true free market in any theoretical sense, at all.

2008 Sep 10 11:16 PM

[Kinabalu:]

I had high hopes for this article after reading the first few paragraphs (basically Senator Bunnings comments). However the article quickly degenerated into the typical Shedlock opinionated rant unsupported by any facts or logical process. His poisoned arrow haphazardly strikes a somewhat contradictory target..."misguided regulation and manipulation of the free markets"

At least one of the three points he lists as to why the banking system is unsound had some validity. The most ridiculous was, of course that banks are unsound because they are, well, banks:

"25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot?"

I feel sorry for your applauding sycophants. Another day without learning anything.

2008 Sep 11 12:16 AM

[blondino:]

Philman writes: "If America becomes competitive, it will sell its goods, and have a balance in trade, or a surplus, and there will be no need for the kind of government intervention that is happening now. "

will americans be willing to work for third world salaries? i truly doubt...
manufacturing's been almost completely outsourced with mere focus on ROI and we are seeing in the US the outcome of the "vicious consume more with unlimited credit". it's all coming down now...

2008 Sep 11 03:57 AM

[The Simple ...:]

The market dislocations over the last 12 months have been in part a reaction to undisclosed or improperly stated risk, and the re-pricing that it requires. Certainly there are macroeconomic forces at play as well, but let us leave those aside for the purpose of this discussion. Orderly markets require a reasonably reliable way to measure present values, future cash flows, probabilities, and all the other fundamentals of finance.

Of course, that is not news to the learned readership here, but the point is this: Policy makers and regulators need not to lose sight of the fact that their role is to provide market participants with a reasonable assurance that their analytical tools will work properly, and then leave the market participants to conduct their business.

The Simple Accountant believes that the authorities have made an error, perhaps an understandable one but an error nonetheless, in putting public resources into the rescue of individual financial entities rather than systemic assurance of transparency, for example. Professor Roubini's call for more (should we say better?) regulation seems more agreeable than Mr. Shedlock's call for the complete absence of it, but the abhorrence of both gentlemen for "socialism" in the financial markets is well founded.

2008 Sep 11 10:10 AM

[RueTheDay:]

This post is just typical looneytarian idiocy. "If we could only get rid of the government, all of our problems would go away." Of course, you don't REALLY want to get rid of the government, because "free markets" require enforced property rights and enforced contracts in order to exist, property and contracts require a legal apparatus for enforcement and dispute resolution, and that means government. Eliminating government doesn't bring about libertopian capitalism, it brings about Hobbesian anarchy soon followed by a distinctly non-libertarian order imposed by the warlords, gangs, bandits, and mafioso that arise in the power vacuum.

Markets can certainly be powerful tools, but their existence is predicated on the existence of government. Furthermore, their ability to be self-stabilizing is predicated on assumptions such as the non-existence of externalities, the inability of parties to exercise market power over outcomes, symmetrical information, etc. Roubini was spot on in criticizing the laissez-faire cultists.

2008 Sep 11 10:46 AM

[Jason Rines...:]

I agree with you HARM. I have studied governments and history for a long time now because the knowledge of human nature which does not change is invaluable in life. That said, this government is now Fascist. I could explain nuances such as American Fascism vs. Italian Moussoulini's or Nazi Fascism but the result is all the same. The political partie(s) in power favor one group or sector over another for personal gain. Capatalism exists or at least a notion the general public is still does. Fascism can actually be an effective tool for a short period (why I mentioned Nazis or Moussoulini) but in both of these cases, the ulterior motive of the men at the helm was bad. The men at our helm are bad. This short term greedfest will also end bad but it will likely end by the American people itself. 60 million gun owners will not be told indefinatey they must serve there masters of the universe. History does rythme.


On Sep 10 01:54 PM HARM wrote:

> Mish,
>
> Like many people, you seem to be confusing old-school "regulation"
> (trust-busting, policing fraud, coercion and market manipulation,
> setting reasonable limits to business practices, "level playing field"
> stuff) with corporate socialism, which is NO REGULATION on the way
> up, but massive BAILOUTS (for the rich) on the way down, as Roubini
> and others have correctly pointed out.
>
> The current business model in the U.S. is not so much "regulated
> capitalism", or even Soviet-style socialism, it's naked corporate
> socialism, mixed in with kleptocracy. Some have argued it's really
> closer to national socialism (a.k.a. fascism), and many of those
> arguments are compelling.
>
> Examples of real "regulation"... Trust-busting, outlawing fraud,
> coercion, insider trading, bribery, pump-and-dump. Preventing companies
> from dumping toxic waste in waterways (tradegy of the commons), prohibiting
> slave/child labor, requiring employers to carry worker's comp/injury
> insurance, whistleblower protection laws, requiring full documentation
> of borrowers, setting reserve requirements for banks, FDIC insurance
> for ordinary depositors.
>
> Examples of corporate socialism and kleptocracy: Bailouts for the
> rich and well connected, losses for everyone else. Fed Funds rate
> set below the prevailing rate of inflation, cash-for-trash programs
> ("free" money for banksters). Extreme laisseze-faire approach to
> asset/credit bubbles on the way up, tacit --or even explicit-- approval
> of large-scale fraud, deliberate non-enforcement of existing regulations,
> no limits to margin trading, taxpayer underwriting of losses, generous
> tax credits/deductions for speculators, quasi-"private&qu.... entities
> (GSEs) that use their monopoly powers to squeeze out the truly private
> market players.
>
> Let's not throw the baby out with the bath water just yet.

2008 Sep 11 04:09 PM

[Jason Rines...:]

I am a big fan of Mish as well. But you are incorrect in your intpretation of user 256999's comments. He/She was stating bad market practice and that the common investor got burned by this Fascism for the elite, selfish narcassists running Washington and our Central Banking system. Kudo's on self-educating yourself. You show more courage and intelligence then 90% of all Americans. But you still have a tad more to go so be careful in hasty judgements.

On Sep 10 02:54 PM outtafavr wrote:

> I'm afraid there is no way to dismantle the current system in an
> orderly fashion. The system is currently on life support and I believe
> there is substantial risk that the end may involve significant disruption.
>
>
> Meanwhile, the socialist/class envy/every man a king/utopians (User
> 256999 this is you) remain at the helm. Even Dr. Roubini is afraid
> to take them on, but Michael Shedlock is not.
>
> Many thanks to you, Michael, for your excellent analysis. Hopefully,
> those who construct the next system will have similar insight into
> America's sins of the past.

2008 Sep 11 04:17 PM

[Jason Rines...:]

Yes and no Jomama. The American Revolution occured because of a failure to listen to it's population that helped support it (British Empire). A very small portion of the population revolted in what amounted to 4% sales tax on every luxury item on the American population. Think of that compared to today, it is pennies!

The result of the American Revolution was a better system even though it took the country a good thirty years to stabalize the economy (no gold to anchor Continental Currency to). Within the American political system stands Liberty first, then Equality second. When a corrupt group of politicians wishing to legislate into there own pocketbooks tout 'every American should own a home' that is Equality first which in and of itself ALWAYS fails (socialism) without Liberty being first (reap what you sow from FREE actions). I could get into specific regulation which existed and was removed causing the current unregulated and mitigated catastrophe we see unfolding before us, but I have a feeling you get my point. Voter revolution is a probable outcome to occur as it has in the last three major financial crisis' in American history (1877, 1908 and 1934) all caused by the same root cause of greed by those leading and corrupt in our nation. I do not feel a physical revolution shall occur.


On Sep 11 10:07 AM jomama wrote:

> As usual, Mish gets it precisely right.
>
> I will take issue with the mechanics of the solution, not the solution
> itself.
>
> The System is its own worst enemy and *any* "reform" will
> just prolong the agony of defeat.
>
> Force always eats itself. Human history is full of examples of<br/>these
> fallen Empires. Hubris always builds until the populace
> can no longer support it, bleeding the former til the latter collapses,
>
> something a surviving parasite (in this case, the state) is not prone
> to do.
>
> If that's true this time, there is no political solution, up to and
>
> including revolution, the worst of all possible outcomes. How could
>
> anyone logically expect the solution to come through the actions
> of
> The System that brought it all on? The players are all on the blue
>
> pill. Once the revolutionaries are in that system, won't they also
>
> succumb? Obvious, to me.
>
> Therefore, The System must collapse without help or hindrance, dead
> as it is.
>
> There is no cure.
>
> It's terminal.
>
> DOA.
>
> As to be expected, your mileage may vary...
>
>
>

2008 Sep 11 05:25 PM

[charles77:]

Democrats in Congress and Bill Clinton relaxed lending stardards in the years ago so low income people with bad credit could buy houses with no downpayment, poor credit and no proof that there income was enough to afford the house.
Just Google old newspaper articles or the Congressional Record.

"A brief history of the Fannie Mae and Freddie Mac mess is in order. Back in the days when a Bank or Savings and Loan approved a home loan, they did so with lending standards that had historically led to only safe loans. They had to because they kept the loan and were responsible if it failed. These standards included 3 major parts.

First, the mortgage payments could be no greater that a set percentage of your income, usually about 40 percent.

Second, a down payment was required of about 10 percent or above so the new owner would immediately have some equity in the home.

Third, A good credit rating was required to prove you had a history of paying your bills.

Some adjustments could be made, for example people that had poor credit could get a loan with a larger down payment so if the loan failed, the bank could still resell the house and cover the loan."

strategicthought-charl...

2008 Sep 22 03:32 PM

[Steven Hansen:]

Michael, thank you for another thought provoking masterpiece.

i am sure everyone from the farm worker in the central valley to the manager of a Wal-mart store knows the system is broken just by looking at the unreal acts being taken by the Fed and Treasury.

congress' has the power to make any and all changes. they know how to take lobbyist money, but they know nothing on how an economy operates (or should operate). they are the ones which would have to deal with any changes to the current fractional banking system. the dilemma for me is that i do not trust them to get it right.

2008 Dec 17 02:58 AM