NationStates Jolt Archive

Over the past few days new figures have been coming out which compelled the candidates to say something about the matter.

A quick recap of the problem: Banks and other lenders were able to lend money out and then split the payments they were receiving apart, combining them with parts of payments of other loans (and even completely unrelated payments sometimes) to create a security (like a bond) that would pay out the same amount every so often for a predetermined period of time. Those securities were then traded just like shares are.

Because of that, the lenders themselves were able to get cash out of the mortgages quickly. They didn't have to wait for years to get the money back, they could just sell them on right away. And they also got fees for setting up the mortgage and for securitising it.

The downturn in the housing market has made people stop buying these securities, and because there is no more market for them, no one now knows what they're still worth. Therefore banks that own (what used to be) billions of dollars worth of them now don't lend anymore, and any odd scare can bring them down, like Bear Stearns.

A real fix for this problem can't be provided by the Fed because it can only throw money at it, it can't do anything about housing crisis and therefore the underlying value of these securities.

To add further trouble, many lenders that were mainly after the fees had offered people who really couldn't afford it mortgages with low entry interest rates, presumably telling them "that gives you time to prepare for the real payments later on". Turns out that many of them couldn't prepare, and the economic downturn doesn't make it any easier. So with every bunch of rate resets a lot more people will be losing their homes. That destroys their plans and loses them money, it destroys the holders of the mortgage in the form of securities their money and it brings down the value of other homes in the neighbourhood.

The three candidates have started to present something edging towards a policy on the matter:

John McCain has said that he doesn't want to bail out people because that would create moral hazard issues and wouldn't be fair on the majority of Americans who didn't get involved in the crisis. He's emphasised that his solution would be about a careful judgement of cost and benefit, so he would be doing it purely to help the economy, not to help anyone keep their homes. He wants assistance to be temporary, borrowers have to provide truthful financial information, stricter standards on lenders (somehow making them partly responsible for the performance of the loan, among other things), higher down payment requirements for loans, a big meeting with lenders to ask them to do everything they can "for the country" and making it easier for big financial institutions to raise capital (he says it'll raise reserves for cases like this, I'm sceptical).
His speech on the matter (http://www.pbs.org/newshour/bb/politics/jan-june08/mccaineconomy_03-27.html) Moar stuff (http://www.pbs.org/newshour/vote2008/blog/2008/03/mccain_takes_hard_line_against.html)

Barack Obama was ranting on a bit about greed and how lobbying destroyed the effectiveness of regulatory framework. Then he got to it: setting up an incentive program to get lenders to refinance mortgages (hard for the securitised ones, because strictly speaking the lenders usually don't actually own the things anymore), $10 billion to help those who were victims of fraud and greater penalties for it, a scoring system for loans so people can compare, 10% tax credits for mortgage interest payments, greater oversight over investment banks including reserve requirements (which basically is a complete and utter change to their business model), more transparency requirements, an attempt to internationalise these measures (because he knows these banks will just go to London if they don't like what he does), extension of regulations to non-bank lenders, doing something about "market manipulation" and a "financial markets oversight commission".
Obama's Speech (http://www.pbs.org/newshour/bb/politics/jan-june08/obamaeconomy_03-27.html) Moar stuff (http://www.pbs.org/newshour/vote2008/blog/2008/03/obama_weighs_in_on_economy_cal.html)

Hillary went all socialist on everyone, proposing by far the harshest measures and making a point of only blaming Wall Street, lenders and speculators. And Bush of course (though Obama did that too). She really wants to stop the foreclosures, so she suggests a freeze on interest rate payments for 5 years (!), stopping any of the resets from occuring. Perhaps even more questionably, she wants a 90 day moratorium on all foreclosures. She also wants brokers to disclose the fees they're getting to the borrower from the outset (not a bad idea) and require them to take into account tax and insurance payments when deciding whether to lend money in the first place. She proposed criminal penalties for lenders who "took advantage" and enable bankruptcy courts to write off or down the value of homes. She also wants $30 billion package to the states and cities, to be used to buy up foreclosured houses and re-sell them to struggling families for cheap, or convert them to rental properties. She was also quoting FDR. ;)
Her speech (http://www.pbs.org/newshour/bb/politics/jan-june08/clintonhousing_03-27.html)

So, what do you reckon? Who's got the best ideas?

Hillary went all socialist on everyone, proposing by far the harshest measures and making a point of only blaming Wall Street, lenders and speculators.


An actual socialist would include the greed and stupidity of those getting loans, noting the general American drive to live way, way, way beyond their means. He or she would note that this is a problem. He or she would also likely point to the information asymmetries that are natural to the market system. He or she would also note that calling Hillary a "socialist" is patent nonsense.

This need to live beyond our means is, I think, really at the heart of this problem. But over stressing the economy to the point of near-destruction (domestically and globally) has somehow become some sort of "right" or "freedom." The solution is changing cultural values so that people live within their means, perhaps even relying on credit only when necessary, as an emergency measure.

But such blatant personal responsibility would mean reduced profits for banks and an apparent reduced "standard of living" for the average greedy schmuck. I say "apparent" because I would personally call not bringing the economy to the brink of collapse on a cyclical basis an improvement in standard of living, but I'm just a dirty "socialist." :)

Anyhoo...none of the "candidates" proposes a real solution to the problem, because the solution to the problem entails slapping each and every American up along side the head telling them that their need to endlessly consume regardless of the ability to afford it is the problem. But, of course, this isn't popular policy in the United States. We seem to prefer the neoliberal economic and military agenda of "opening" foreign markets and endlessly increasing our consumption, and we'll worry about the impending market collapse when we get there.

Personal financial responsibility is simply UnAmerican.

I have no opinion on the matter, because it boggles my mind that:

1) A bunch of people managed to mess up this badly. Who did it, I have no clue, so... *shrugs*

2) A bunch of people actually went along with something that was quite stupid for them (referring here to a number of specific cases with people taking out loans that they could in no way ever afford).

3) I daresay we let things play themselves out. The results should be interesting and would force people to make decisions. I have no idea what these decisions should be.

So I guess I did have an opinion *shrugs*

Im partial to Obama's idea (mostly cause of his rant actually) followed very closely by Hillary.


Frankly, when Republican politicians start talking about "personal responsibility" I tune out.

Frankly, when Republican politicians start talking about "personal responsibility" I tune out.

Hello? Borrowers and banks voluntarily entered a risky relationship with the subprime ARMs. You'd have to be an idiot to think that "lowest rates ever!" won't go up. I didn't do anything financially stupid, so why should I be forced to pay to bail people out?

Personal responsibility has kept me from being a burden on society. I drive a 12-year-old econobox that I paid cash for. I saved money so I didn't need to apply for unemployment benefits when I lost my job. I have my own medical insurance policy. Thus, no one has to be forced to give me anything. Why should I be forced to give any one else anything?

All their plans are moronic.

Hello? Borrowers and banks voluntarily entered a risky relationship with the subprime ARMs. You'd have to be an idiot to think that "lowest rates ever!" won't go up. I didn't do anything financially stupid, so why should I be forced to pay to bail people out?

Personal responsibility has kept me from being a burden on society. I drive a 12-year-old econobox that I paid cash for. I saved money so I didn't need to apply for unemployment benefits when I lost my job. I have my own medical insurance policy. Thus, no one has to be forced to give me anything. Why should I be forced to give any one else anything?

I guess he likes other people paying for his shit.

I guess he likes other people paying for his shit.

I love jerking Republican's and Libertarian's chains. You guys make it so easy.



Mostly, I was refering to how easy it is for rich white guys from privileged families (Republican candidates) to talk about other people's personal responsibilities and how ironic such discussions are.

I love jerking Republican's and Libertarian's chains. You guys make it so easy.

You like flamebaiting, then?

i'm partial to getting a head start on the whole "lining people up against the wall come the revolution" thing.

Mostly, I was refering to how easy it is for rich white guys from privileged families (Republican candidates) to talk about other people's personal responsibilities and how ironic such discussions are.

...and someone's background is grounds for dismissing an argument why exactly?

Rich white guys are the majority of both parties' candidates, not just Republicans...

Mostly, I was refering to how easy it is for rich white guys from privileged families (Republican candidates) to talk about other people's personal responsibilities and how ironic such discussions are.

Yeah, all politicians are full of ****, and they usually don't believe a word they say themselves, but that doesn't mean that by blind chance they can't get it right once in a while. I've even found myself nodding in agreement to Teddy K and George Soros, even though I think they're both wrong 99% of the time.

Questions: this topic is about the policies the candidates wish to enact. How would they have any power to do anything? Congress makes the laws and has the purse strings. What can the president realistically do?

Frankly, when Republican politicians start talking about "personal responsibility" I tune out.
Second. I wouldn't, but it's never actually about personal responsibility, it's about directing the blame and scape goating some one so they and their cronies can get off scott free.

Questions: this topic is about the policies the candidates wish to enact. How would they have any power to do anything? Congress makes the laws and has the purse strings. What can the president realistically do?
Doesn't the President usually set the agenda, and Congress works out the details? Isn't that sort of convention, unless the two sides are in open warfare?

Anyways, it'd come down to coalition building, as it usually does in democracies.

Rich white guys are the majority of both parties' candidates, not just Republicans...



Yeah, but democrats dont get up there and say "Poor people are only poor because theyre lazy. They just need some responsibility."


Their ideas are usually equally as rediculous, but not nearly as predictable.

Yeah, but democrats dont get up there and say "Poor people are only poor because theyre lazy. They just need some responsibility."
That's not what's being said. McCain (sorta) said that the people who are in trouble with their mortgage payments are in trouble with their mortgage payments because they entered into mortgage contracts.

To me, that looks like a pretty good line of reasoning, and aside from the cases of actual fraud, I don't really see who else could be blamed other than they themselves.

That's not what's being said. McCain (sorta) said that the people who are in trouble with their mortgage payments are in trouble with their mortgage payments because they entered into mortgage contracts.

To me, that looks like a pretty good line of reasoning, and aside from the cases of actual fraud, I don't really see who else could be blamed other than they themselves.
Ahh, the old blame the victim complex.

Ahh, the old blame the victim complex.

damn! i lost a wad of money playing poker! i'm a victim!

They aren't victims. They made stupid decisions that anyone with half a brain can say is stupid. The borrowers got stupid-huge loans that they could barely pay, and the banks relaxed their loan policies because there seemed to be people who were willing to take the financial risks. both sides are at fault, and I don't want to bail out either side because some people (and institutions) don't learn without consequences.

damn! i lost a wad of money playing poker! i'm a victim!

lmao

They aren't victims. They made stupid decisions that anyone with half a brain can say is stupid. The borrowers got stupid-huge loans that they could barely pay, and the banks relaxed their loan policies because there seemed to be people who were willing to take the financial risks. both sides are at fault, and I don't want to bail out either side because some people (and institutions) don't learn without consequences.

Agreed.

I think it's naive to believe that both business and individual entered into these agreements in the same way.

Things will change a lot by the time any of the candidates becomes President. That's eleven months away!

So they can easily talk big now, then not do what they said they would do in the current situation. In a sense, it's a hypothetical question. "What would you do NOW if you were President NOW?"

It may surprise some who see me as a socialist, but I like McCain's answer best. There is going to be pain for homebuyers (probably for anyone trying to borrow money for business, too) and it's irresponsible for government to pretend it can fix what has happened already. He quite rightly draws a line between emergency bailouts for the good of the whole economy, and bailouts to protect investors.

I also think McCain has a strategic advantage on this question. He just needs to sound like he knows what he's talking about. The two Dems still need to fight over their party base, leading to a bidding war in their proposals.

I think it's naive to believe that both business and individual entered into these agreements in the same way.
Obviously. One side is trained and earns their money with dealing in financial matters, the other is generally not as knowledgable. Since many of the borrowers were first-time buyers, they had the added difficulty of dealing with a million other things at the same time (my parents are in the process of building a house right now, so I can sorta relate). Many made rookie mistakes, like getting their real estate agent to figure out a mortgage for them. That sucks.

But it's no one else's fault. Having seen the sort of real-world financial hardship we went through, the pain of finding someone who would actually give us any mortgage in the first place, now the pain of trying to reconcile dreams with realities, I really do sympathise with these people more than you'd think.

But just because it sucks and it's painful and maybe it's even undeserved doesn't create a claim on anyone else. As long as no one was being deceitful, borrowers and politicians alike just need to realise that this is a learning experience, albeit one most people could've (and probably should've) done without.

And even so, you lose a house, you lose some money, you lose your credit rating and perhaps your hopes for the near future take a pretty big dent. It's still not the end of the world. Time to move on.

I quite liked this report on TV the other day. People keep bitching and moaning about US news media...just watch more of this and you'll be fine: http://www.pbs.org/newshour/bb/business/jan-june08/baltimore_03-25.html

And here's Paul Krugman (well-known, well-respected economist turned political polemicist):
http://www.spiegel.de/international/0,1518,543916,00.html
Mr. McCain is often referred to as a “maverick” and a “moderate,” assessments based mainly on his engaging manner. But his speech on the economy was that of an orthodox, hard-line right-winger.

It’s true that the speech was more about what Mr. McCain wouldn’t do than about what he would. His main action proposal, as far as I can tell, was a call for a national summit of accountants. The whole tone of the speech, however, indicated that Mr. McCain has purged himself of any maverick tendencies he may once have had.

Many news reports have pointed out that Mr. McCain more or less came out against aid for troubled homeowners: government assistance “should be based solely on preventing systemic risk,” which means that big investment banks qualify but ordinary citizens don’t.

But I was even more struck by Mr. McCain’s declaration that “our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”

These days, even free-market enthusiasts are talking about increased regulation of securities firms now that the Fed has shown that it will rush to their rescue if they get into trouble. But Mr. McCain is selling the same old snake oil, claiming that deregulation and tax cuts cure all ills.

Hillary Clinton’s speech could not have been more different.

True, Mrs. Clinton’s suggestion that she might convene a high-level commission, including Alan Greenspan -- who bears a lot of responsibility for this crisis -- had echoes of the excessively comfortable relationship her husband’s administration developed with the investment industry. But the substance of her policy proposals on mortgages, like that of her health care plan, suggests a strong progressive sensibility.

Maybe the most notable contrast between Mr. McCain and Mrs. Clinton involves the problem of restructuring mortgages. Mr. McCain called for voluntary action on the part of lenders -- that is, he proposed doing nothing. Mrs. Clinton wants a modern version of the Home Owners’ Loan Corporation, the New Deal institution that acquired the mortgages of people whose homes were worth less than their debts, then reduced payments to a level the homeowners could afford.

Finally, Barack Obama’s speech on the economy on Thursday followed the cautious pattern of his earlier statements on economic issues.

I was pleased that Mr. Obama came out strongly for broader financial regulation, which might help avert future crises. But his proposals for aid to the victims of the current crisis, though significant, are less sweeping than Mrs. Clinton’s: he wants to nudge private lenders into restructuring mortgages rather than having the government simply step in and get the job done.

Mr. Obama also continues to make permanent tax cuts -- middle-class tax cuts, to be sure -- a centerpiece of his economic plan. It’s not clear how he would pay both for these tax cuts and for initiatives like health care reform, so his tax-cut promises raise questions about how determined he really is to pursue a strongly progressive agenda.

All in all, the candidates’ positions on the mortgage crisis tell the same tale as their positions on health care: a tale that is seriously at odds with the way they’re often portrayed.

Mr. McCain, we’re told, is a straight-talking maverick. But on domestic policy, he offers neither straight talk nor originality; instead, he panders shamelessly to right-wing ideologues.

Mrs. Clinton, we’re assured by sources right and left, tortures puppies and eats babies. But her policy proposals continue to be surprisingly bold and progressive.

Finally, Mr. Obama is widely portrayed, not least by himself, as a transformational figure who will usher in a new era. But his actual policy proposals, though liberal, tend to be cautious and relatively orthodox.
No guesses then on who he supports.

Stuff their suggestions. We all know best at NSG, so I'm going to give mine.

When poor people screw up they have to pay the piper. Time to get the rich pricks to do so aswell.

Retroactive corporate legislation. Any bonuses paid to people for high performance, that then is shown to be rubbish, and there was no high performance(this sub prime fiasco, Enron, etc) has to pay it all back.

If they can't pay it back, greater powers are give to the relevant authorities to look through all their finances and chase it back. Huge gifts to relatives, house in wife's name, it's all coming back, and being sold, to pay back the shareholder.

I know some people will say, well the family did no wrong, etc. Law needs to be consistent. The money that employee got was on false pretenses. They Did Not perform at a high standard and they knew it. If you receive stolen goods you get in trouble. To me, this is a very similar situation. They profited from the deception.
Another example. If you knew you were going to divorce from your spouse, if you did lots of shady deals beforehand and shifted most of your assets to family and friends, the divorce courts would chase you for it.