Tuesday, September 30, 2008
The cause of the economic chaos – what I’ve learned
It is clear that everyone wants to blame “the other guy” for what’s happening but I see two main causes from what I’ve read and two different sides to blame.
1. Credit Default Swaps (CDS) and the bill that allowed them to bypass regulation
CDS represent a $55 trillion market (down last week from $62 trillion). To be worth that much money you’d hope that they are tangible assets right? Wrong. Credit default swaps are basically ‘insurance’ on bad debt (except that without regulation there was no one to oversee whether the purchaser actually had the capital to cover losses so no real ‘insurance’ existed, hence our problem today). They were a way that banks could get liability off their books to free up capital and now that ‘risk’ has been pushed around and re-packaged so many times that virtually all banks are in the hole for some of that $55 trillion.
Just for a little perspective, these swaps represent about four times the worth of the entire stock market and about six or seven times the failing housing market. So, to blame either Wall Street or the Housing market alone would be undercutting the real monster.
Article #1 – Newsweek
Article #2 – Mother Jones
Article #3 – Time
Article #4 - Bloomberg
2. The poor regulation of Fannie Mae and Freddie Mac
This is a secondary issue but since Fannie and Freddie are government backed it’s important because their actions put taxpayers at risk. Obviously the accounting fraud uncovered in 2002/2003 is a big deal, just like how Enron was a big deal (by the way, Enron can be traced back to #1 because in the same bill that ensured CDS would not be regulated, it also called out that energy trading would be free of government oversight). Anyway, I would argue that the accounting fraud is worth pointing out not because of the fraud itself (which is horrible but not the cause of the meltdown) but because of the emphasis on ‘affordable housing’ that it led to. The two firms went under close scrutiny and needed to justify their existence. Well, the best way to do that would be to become a champion of ‘affordable housing’. Enter a slue of sub-prime loans, artificially low interest rates and misrepresented housing values. Because of the size of Fannie and Freddie the loans they supported were the loans others wanted in on and thus a sub-prime disaster. Of course the sub-prime disaster could not have gotten nearly as out of control if banks weren’t able to package the risk of those loans in credit default swaps and sell them all over the world…
Article #1 – Center for Economic and Policy Research
Article #2 – WSJ
Article #3 - Ron Paul in 2003
So, that’s what I have learned.
1. Credit Default Swaps (CDS) and the bill that allowed them to bypass regulation
CDS represent a $55 trillion market (down last week from $62 trillion). To be worth that much money you’d hope that they are tangible assets right? Wrong. Credit default swaps are basically ‘insurance’ on bad debt (except that without regulation there was no one to oversee whether the purchaser actually had the capital to cover losses so no real ‘insurance’ existed, hence our problem today). They were a way that banks could get liability off their books to free up capital and now that ‘risk’ has been pushed around and re-packaged so many times that virtually all banks are in the hole for some of that $55 trillion.
Just for a little perspective, these swaps represent about four times the worth of the entire stock market and about six or seven times the failing housing market. So, to blame either Wall Street or the Housing market alone would be undercutting the real monster.
Article #1 – Newsweek
Article #2 – Mother Jones
Article #3 – Time
Article #4 - Bloomberg
2. The poor regulation of Fannie Mae and Freddie Mac
This is a secondary issue but since Fannie and Freddie are government backed it’s important because their actions put taxpayers at risk. Obviously the accounting fraud uncovered in 2002/2003 is a big deal, just like how Enron was a big deal (by the way, Enron can be traced back to #1 because in the same bill that ensured CDS would not be regulated, it also called out that energy trading would be free of government oversight). Anyway, I would argue that the accounting fraud is worth pointing out not because of the fraud itself (which is horrible but not the cause of the meltdown) but because of the emphasis on ‘affordable housing’ that it led to. The two firms went under close scrutiny and needed to justify their existence. Well, the best way to do that would be to become a champion of ‘affordable housing’. Enter a slue of sub-prime loans, artificially low interest rates and misrepresented housing values. Because of the size of Fannie and Freddie the loans they supported were the loans others wanted in on and thus a sub-prime disaster. Of course the sub-prime disaster could not have gotten nearly as out of control if banks weren’t able to package the risk of those loans in credit default swaps and sell them all over the world…
Article #1 – Center for Economic and Policy Research
Article #2 – WSJ
Article #3 - Ron Paul in 2003
So, that’s what I have learned.
Monday, September 29, 2008
Would you vote for someone you didn't like?
I've heard from a couple of people now that they don't really like McCain but he's "the lesser of two evils" so they are voting for him. I HATE THAT ARGUMENT. First off there are like five other candidates to chose from, do you like any of them or are you too lazy (against education) to read about them??? I mean seriously people read up on the issues. I have been trying to find valid arguments against Obama because everyone is so convinced that the liberal media is in it for Obama and omitting things on purpose. It would be horrible to use our critical thinking skills and think that perhaps there just isn't as much to report on Obama. Bill Ayers? I'm not even sure I 100% disagree with what Ayers did and knowing a 'terrorist' does not a terrorist make. I know a few lesbians but believe it or not that association has not turned me on to women. Muslim? Please, that's just an excuse for racism as it is clearly not true and "fear of a name increases fear of the thing itself". Reverend Wright? He's a little kooky but no kookier than Palin's witch hunter (in fact far less kooky). Tony Rezko? Okay this may have a little "rub my back and I'll rub yours" truth to it but I don't see much corruption and when compared to McCains corruption record (Keaton Five, Phil Gramm, Lobbyist, Lobbyist, Lobbyist, Bush) I think the point goes to Obama.
The point? None other than what the hell is wrong with education? Just because someting goes against what you previously believed does not mean it is part of a smear campaign designed to make you look stupid.
Everyone should ask themselves this; when was the last time you agreed with something you did not already think, believe or know to be true? We cannot progress without change and sometimes that mean accepting new information and changing your mind.
If you don't like someone DON'T VOTE FOR THEM!!!!!
Geesh.
The point? None other than what the hell is wrong with education? Just because someting goes against what you previously believed does not mean it is part of a smear campaign designed to make you look stupid.
Everyone should ask themselves this; when was the last time you agreed with something you did not already think, believe or know to be true? We cannot progress without change and sometimes that mean accepting new information and changing your mind.
If you don't like someone DON'T VOTE FOR THEM!!!!!
Geesh.
Wednesday, September 24, 2008
[shakes head]
I will take the perfect headline from the Mudflats blog I first saw this on:
"Just for fun, see if you can watch this without putting your palms on your face. Other than that, I am rendered speechless."
It's almost like talking to your hockey mom neighbor about politics.
"Just for fun, see if you can watch this without putting your palms on your face. Other than that, I am rendered speechless."
It's almost like talking to your hockey mom neighbor about politics.
Tuesday, September 23, 2008
Monday, September 22, 2008
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